Joseph Peterson draws parallels between market manipulators in Chinese stock markets and the domain name market.
An article just published by Bloomberg gives us an x-ray glimpse into a Chinese investment culture reliant on pump-and-dump schemes. The parallels with domain market activity during 2015 are so obvious that even this sentence feels a bit redundant.
A Shanghai accountant sums it all up:
If you want to make a quick buck from the stock market, you’d better look for stocks with manipulators … You just need to pull out faster than them.
Bloomberg cites Gan Jie, a professor of finance at the Beijing-based Cheung Kong Graduate School of Business:
Gan says the most common form of manipulation in China is the classic “pump and dump” scheme, where the perpetrators establish positions in a stock and promote it to outsiders, seeking to inflate the share price before selling out.
Yet another expert, Oliver Rui, professor of finance and accounting in Shanghai, is credited as saying:
In some cases, multiple manipulators team up to trade shares among themselves, creating an illusion of growing investor demand that’s designed to attract momentum-chasing speculators …
According to Bloomberg, late in 2014 the official Chinese media published a piece warning that
manipulators were using Internet posts and online messaging services to drive up share prices before dumping holdings on individual investors.
Inside China, this practice of “Zhuang Jia” is far from secret. It’s even publicly celebrated as a path to wealth. Qingdao Langwang, an investment consulting firm, charges 6,800 yuan for
a crash course on stock manipulators in China: how to anticipate their targets, how to spot their trades and — most importantly — how to profit by following in their tracks. The three-month class is one of at least 100 across the country …
To quote the CEO: “We need to dance with the wolves”. Meaning? That “the only way to truly understand China’s stock market is by learning the tactics of traders who routinely manipulate it.”
Bloomberg states that there are “hundreds of books on the subject” of market manipulation and goes on to characterize the prevailing culture:
Instead of avoiding suspected Zhuang Jia targets, many of the nation’s 97 million individual investors actively seek them out — hoping to ride the artificial gains in manipulated shares and sell before they inevitably collapse.
While this piggy-back strategy is “completely legal” in China, the article emphasizes:
Over the past few months, [Chinese regulators have] escalated a crackdown on market manipulators, ensnaring some of the the nation’s most high-profile money managers and announcing more than 2 billion yuan of fines and confiscated gains.
For example, authorities assessed a fine of 19.9 million yuan against one hedge fund manager last September. And in November “police froze $1 billion of shares … tied to” yet another prominent investor.
Here’s the full article.
What I find most alarming about Zhuang Jia is the dangerous gap between awareness in China and ignorance in the West. In China, investors discuss pump-and-dump schemes openly, accept them as fraudulent, and consciously inflate bubbles – buying into them, risk and all. As long as they can cash out in time and let somebody else absorb the loss, so be it!
Meanwhile, in the West we’re used to more reliable conditions. So we tend to assume whatever the market does is real. If price increases seem too rapid to justify, we will invent theories to justify them or simply accept market demand on faith. After all, money is flowing; isn’t that proof enough?
Some months ago, people began to voice doubts. I described “hype” and wondered aloud if recent buyouts would end up resembling unintentional pyramid schemes. Andrew Allemann warned about domain pumping and bubbles bursting. He even found a Chinese registry had included bogus auction results in a NamePros post.
After urging caution where the Chinese domain sector is concerned, some of us have been pilloried and ostracized. That’s understandable. Where such assets are promoted for sale, any mention of hype tends to be met with hostility. But even my tamest comments have been censored or blocked by major sites. So the Bloomberg piece is welcome vindication.
Market manipulation does not explain 100% of the growth we’ve all witnessed in the Chinese domain market during the last year. For my part, I do see legitimate value in the best Chinese-style domains. But enthusiastic pumping – both inside and outside China – accounts for a big part of the lift. With so many people in China engaging in Zhuang Jia, it would be shocking if nobody thought of gaming the system with domains.
Remember, $5 trillion in stock-market value was suddenly erased during the Chinese crash last summer. With the Chinese government cracking down on perpetrators of Zhuang Jia during the fall, where better to hide out and repeat these pump-and-dumps than in our largely unregulated domain industry?
Excellent, Joseph.
Joseph-first off Happy New Year! One major reason the China stock market has taken such a big hit is that you can’t short China stocks so there’s no one to “cover” their short position at any point in the downdraft. The same situation occurs with domains names. If you recall Mark Cuban sold his Yahoo stock ( after they bought Broadcast.com from him) within a month and that was the top of the .com boom. Just replace Mr Cuban’s name-on a much smaller scale-with Rick Schwartz and you’ll see my point. Great article you posted here.
Outstanding article, Joseph.
I lived in Shanghai, so I learned a bit how things work in China.
Is it possible some of the high domain sales 9.xyz, and many LLL.com to Chinese domain investors are not legitimate. And if not, what are the ramifications of parties, based in the USA, who may have participated in “pump and dump” schemes like the ones cited above.
Of course, these schemes have been going on for decades, all the way back to the Gilded Age in the USA and Joseph Kennedy, patriarchy of the House of Camelot.
@Steve,
Yes, it took regulators in the USA generations to catch up with the stock-market scams that used to go on in this country. (The Bloomberg article goes into more detail on that, actually.) China started down this path later and is going through a similar process, learning to crack down on abuses as they occur.
I don’t think you can classify the Chinese domain buying of 2015 as a pump and dump, but we’ll see. There may be some of that happening, and it has caused a lot of speculative buying into longer domains and exotic extensions, but I think that is just the market and individual investors at work. I see all the market activity and sales reports, I don’t see a lot of press pumping up domain buying. After watching the domain market through 2015, I now think this is a change we will have to live with. There isn’t enough supply of short numeric and letter .com’s for the world, and other popular extensions are also seeing the pressure. I think some of this buying has probably gone too far into longer domains, and into more exotic extensions and new gtlds, and some of that will be given back at some point. The market will ebb and flow. A true stock pump and dump usually spikes up the price and then goes back down to zero when the buying pressure is over and people see no value in the stock. I don’t see this whole market going completely back to where it started. Some people still can’t absorb what has happened to domains in 2015 because it doesn’t make sense with everything we used to see as value (or they were blindsided and didn’t have time to take advantage), but this is the new reality and if it makes some people feel better to call it a pump and dump, or think that it will all fail at some point, go ahead. Other people think that 2015 is just the beginning and more is to come…
@@domains,
In general, painting with a broad brush is something I try not to do. We don’t need to “classify the Chinese buying of 2015” as any single, absolute, all-or-nothing thing.
You won’t hear me dismiss the surge in prices within the Chinese sector as “nothing but” a pump-and-dump scheme. Some of these domains are valuable and were sought after in China even before the 2015 boom. Part of the growth is natural.
Part of the growth is unnatural, however. Even there, a lot of different mechanisms are at work simultaneously. Part of it is naive enthusiasm, as domainers get carried away speculating. Part of it is hype from sellers. Part of it is an overreaction to headlines about buyouts, which themselves tend to accelerate the pace of buyouts.
It seems unlikely that no Zhuang Jia is going on. After all, that’s what many Chinese investors are accustomed to. Even in the West, we’ve seen less sophisticated schemes with buddy bidding and paid shills at auction platforms like Flippa. And that’s small potatoes compared to billions of dollars in China being manipulated by very intelligent hedge fund managers.
What’s important to think about is this: Chinese buyers are on the lookout for bubbles to participate in and inflate. It’s how money is made. Most of them aren’t manipulating the assets themselves – just trying to piggy-back on any steep price increase. And when masses of people join in, that can only magnify the ups and downs.
Many thanks for sharing your educated and well-research insight in detail. Best wishes for a wonderful new year!
Joseph,
Welcome to the club of those who write about pump-and-dump schemes & C. 🙂
As equity analyst let me tell you that those practices have been widely spread in the “western markets” for years and, unfortunately, as correctly mentioned by Bloomberg, are a sort of “tradition” in China and surroundings … just think to Hong Kong trade many years ago, when was still under the UK …
As I mentioned months ago on some domain blogs, stock and domain market have many similarities … so nothing new under the sun … just new “faces”, but same practices …
Happy New Year everybody! 🙂
Great article….but.
The only issue I see with making a link between their markets and domains is who are they ultimately dumping to? I would suspect only other Chinese. Secondly if this was some type of master pump and dump scam why not privately buy up all of Franks or Berkins short names first, for example. I see no where that any Chinese investment firm dumped millions into short names then suddenly over a year prices went 4-5x.
I think as with everything we will hit a ceiling and yes someone will be left holding a bag of sorts but was it part of a master plan or just a ball that got rolling? All I know is no North American domainer especially should get caught paying $XXXXXX for what was $XX,XXX a year before and then the floor drops. That buyer is either a huge risk taker or grossly uninformed. Now in saying that we can look back at 2007 and how stupid and greedy the general population of some countries are.
Good article Joseph, Warning Warning Will Robinson. Health & Wisdom in 2016
this is bullshit… i only listen to domain shane… and all these kxrt.cc domains will only continue to rise with the price of apple stock.
Joe there may be some merits in what you are saying and it is a well written and thought out article.
It is a broad brush stroke to paint a whole set of activities within the Chinese market with caution rather than focus on the specific bad actors or bad activity.
Thats totally ok as a style, but I would encourage readers to not overlook where there are authentic opportinities in the Chinese market.
The upper class with disposible income numbers in the hundreds of millions. There is a market.
There are a number of thoughtful courses and sessions at the NamesCon conference where folks who are familiar with the market will discuss and even teach about the good and the things to avoid.
@Jothan,
Yes, it would be throwing the baby out with the bathwater if I were to advocate avoiding the Chinese domain market altogether. Caution doesn’t necessarily mean frigid avoidance. It means being aware of potential risks, doing research, and allowing different people to make up their own minds differently. Certainly, we both agree that “there are authentic opportunities in the domain market”.
In the domain industry, it’s rarely feasible “to focus on the specific bad actors”. Nobody is paid to investigate corruption, and the task is too laborious to undertake unpaid. We all have more remunerative, more constructive work to do. Therefore corruption in our industry will mostly go unreported.
With pump-and-dump schemes, we’re talking about a grey area. At what point does urging people to buy X become unethical pumping, as opposed to plain old salesmanship? Who’s to say that somebody is enthusiastic about X only as a ruse to dump it on the next guy? Maybe he’s genuinely excited about X because he thinks it’s a great opportunity. Maybe he’s selling it because he can make a buck, but that doesn’t mean he’s up to no good. It’s too ambiguous to point fingers.
It’s also difficult to substantiate what’s really taking place when person A trades with person B. Aliases are often used. Whois privacy as well. We never know what else is exchanged under the table. Broad trends might mean something, but individual transactions look the same whether they’re legitimate or faked. Assembling and analyzing that data set is challenging. And accusations can’t be raised without solid proof.
For instance, I was tracking specific shill bidders on Flippa for quite awhile. To me, the evidence was 80% or 90% convincing; but I’m not going to call somebody a thief and a liar without that missing 10%. At a certain point, gathering evidence is too much work to bother with.
For all those reasons, I’ll settle for urging caution. Vague perhaps. But safe.
@Joe, this paragraph caught my attention, I will try to break down my thoughts…
“With pump-and-dump schemes, we’re talking about a grey area. At what point does urging people to buy X become unethical pumping, as opposed to plain old salesmanship? Who’s to say that somebody is enthusiastic about X only as a ruse to dump it on the next guy? Maybe he’s genuinely excited about X because he thinks it’s a great opportunity. Maybe he’s selling it because he can make a buck, but that doesn’t mean he’s up to no good. It’s too ambiguous to point fingers.”
No, no grey area, own a lot of X, pump it and dump it, that is why the connection with current domain values does not equate to an old fashion pump and dump. It misses not just many trade marks of a pump but has no end game either on grand scales to any particular group.
What makes salesmanship just that and not a pump, easy when you didn’t start buy buying a bunch of cheap X and pumping and dumping it. Nor are you an insider to said pump and are merely jumping on a train and hoping to make a buck. How it ends or why it ends if by fraud is not something you are morally responsible for if you never planned to deceive anyone. There in is the key, did you ever plan to do harm?
What you call enthusiastic ruse to dump is again answered above. I see no where in the history of capitalism where economics 101 says you must believe in your product/service/investment/stock/bond/mutual fund etc with all your heart or you cannot resell it for a profit. I mean if that was the case we mine as well do away with capitalism. Never unload a stock you no longer have confidence in to someone else or you tricked them?
As you said, no way to point fingers but if you honestly believed the above and a ruse or salesmanship crossed a moral line, I can think of a dozen or so of the biggest domainers on the planet to get awards.
Bottom line Joe, no way to ever know until you know but if a guy buys a name for X and see’s values going up and flips for Xx he is not part of a scheme, pump and dump or crossed any moral line. He is likely just trying to make a buck having faith in the investments future to the buyer makes no difference. And if it did Joe you mine as well give up. No more ads on the blogs because honestly you take peoples ad money and honestly believe with all your heart no lie it will be a great buy for them? See where this goes…
@thelegenaryjp,
Sounds to me like you agree with what I said. If we disagree, then I’m missing that point.
Ethics matter, but I’m more concerned with understanding what’s actually happening – in a clinical, descriptive sense. People will judge what other people do as they please.
Yes, people with domains to sell will do their utmost to maximize the number of interested buyers. If they’re trading liquid assets and flipping to other flippers, then they’ll often emphasize the possibility of future appreciation. That’s a primary sales pitch while prices are rising. Their predictions might be right or wrong. And they may or may not really believe what they say in their sales pitches. That’s all business as usual.
Pump-and-dump scenarios are different. In these cases, the sellers are consciously inflating the value of an asset class by faking sales, orchestrating rapid large-scale purchasing, hyping the price increases and buyouts in order to recruit a wider class of traders who will hop aboard and magnify the effects. The plan from the beginning in these cases is to sell off one’s positions once sufficient volume has been acquired and prices rise to a high level. After the dump, other traders might continue trading for a long time based on inertia; and prices might flat-line for a good while before beginning a slow decline back toward real market demand. The key here is that people initiating a pump-and-dump scheme are operating in bad faith, planning to profit on someone else’s certain loss.
Now let me emphasize that for every 1 person who launches a pump-and-dump scheme, there will be many times as many people who simply ride the coat-tails of rising prices. Some of them will suspect that they’re buying into bubble, but the chance to profit in a rising market is almost irresistible. A few of them will use hype to inflate prices still further, maximizing their profits while they can. And perhaps most of them won’t even realize what may be happening; they’ll be buying and selling in good faith, purely based on the exciting opportunity to participate in a growing market.
The main point I’d like to make about Zhuang Jia is this: There exists a Chinese investment culture that is eager to piggy-back on market manipulation. Investors are seeking assets that can be rapidly traded among a group of traders. They’re looking for liquid categories where prices respond quickly to manipulation – e.g. artificial sales, large-scale buyouts, etc. Even investors who aren’t manipulating prices in this way will be ready to jump aboard price increases that seem fishy and out of the ordinary. Right or wrong, many Chinese investors expect manipulation and hope to profit from the pump before the dump. Attracted by the chance to inflate a price rise, they’ll rush to do so. That’s what the Bloomberg article makes clear.
This is very different from what the domain industry is accustomed to. Traditionally, domainers have acted as wholesalers in a supply chain that culminates in retail end-users. So the value we’d pay for a given domain is tuned to what genuine end users might pay. In contrast, the Chinese domain sector has (to a great extent) brushed aside any consideration of retail market demand. Buying is based on rising prices alone.
Traders pay X because they believe more traders will show up tomorrow who will pay more than X. If that isn’t a recipe for a pyramid scheme or a pump and dump, then I don’t know what is.
Personally I believe a LOT of the domain trading going on is related to Currency ,i.e. Yuan and Dollar etc ,from several angles of course.
Wonderful article. Welcome to 2016. Happy new year.
One thing is sure. Most of chinese unicorns names have vowels/v.
Excellent blog post, Joseph. The domain industry, like all others, is subject to manipulation by bad actors – it’s a fact. I appreciate the voice of reason you are sharing on being cautious with domain investing – particularly in response to this sudden and unprecedented Chinese interest. Some of the domains being moved in the aftermarket don’t justify the price. And there are hoards of other new domain registrations that have zero chance of future resale. So your advice is very fitting for investors, especially new to the industry, to be cautious. There needs to be a compelling rationale for investing in a domain aside from momentum buying.
Have to mention that transaction costs when trading stocks are the order less of those publicly shifting the domain name via one of the establish brokers. As the most of the data we rely on comes from these venues, the hype can be expensive to sponsor. And yet, some registry rather than individuals do involve themselves in such malpractices.
Good read Joseph (I actually think you are ahead of your time which it makes it even better) and great comment Menius.
but How is different from the New gTLD pump scheme/hoopla palooza?
I tell you how:
There is NO Resell or Secondary Market for new gTLDs, NONE.
Small detail… Yikes!
When Asia stops buying…the EXODUS will be massive.
Much easier to manipulate domain sales than home sales, although the latter is endemic.
Cornering a market is also market manipulation. Such as buying up short .Coms.
From my experience with selling numeric domains to Chinese buyers: they indeed team up to buy all this numeric stuff.
All the summer I have been selling in bulk to chinese my most ugly CVCV.com at $10K-$15K per domain. Today I am having hard times to get a $5K offer on similar domains.
Myself, during vacations I dig and found most sales even if done from several buyers ended owned by the same group of chinese domain investors which let me think this pump and dump theory could be a theory to seriously consider.
Happy New Year Joseph!
Great article, thank you. Now just hope it is widely read.
The frenzy for Chinese-style domains seems to much more characteristic of a bubble than a pump-and-dump scheme. In a pump-and-dump, the promoter knowingly lies (commits fraud) about a stock to drive the price up, like saying how a company is about to get FDA approval for a miracle cancer drug when there is no bases at all for that. While there may be some lying and collusion when it comes to reporting high sales prices of Chinese-style domains, nobody is really actively promoting them in a fraud type way. In a speculative frenzy, people say and do all sorts of things and talk about how the prices will always keep going up and list all the reasons why prices are rational. And all of that promotes the prices to go up even higher, but that is not pump-and-dump. This is especially true due to the fact that they are not even pumping the exact domain they are dumping, just the market in general. There are laws in the USA about cornering a market, but I don’t think that would apply to specific types of domains.
It might be said that there is no legitimate value in these domains, and that everything said about them is just hype, but that is not pump-and-dump. Buying something worthless on the way up and trying to sell it for a higher price is just a form of speculation. There are always going to be a small group of “bad” operators in a market like that, but that does not necessarily characterize the market as a whole.
Pump-and-dumps are similar to bubbles in that the price goes way up fast and then way back down eventually, so while the exact categorization of this market can be debated, the main point is to be aware that now that prices have risen so much, there is significant risk.
@Eric Borgos
That’s an important distinction – between a deliberate pump-and-dump scheme and more innocent “speculative frenzy”. In between those 2 extremes we’d find simple salesman’s hype, which is neither fraudulent nor sincere.
Let me emphasize that this isn’t an Either / Or situation. Any attempt to characterize the 2015 surge in the Chinese domain market as a single thing will probably be wrong. All sorts of behavior are happening simultaneously.
Is the growth real? Yes, some of it. The Chinese boom began quietly a few years earlier, as I and other sellers can personally attest.
Have we seen a “speculative frenzy”? Yes, definitely. And it has probably overshot the mark.
Is there hype and pumping going on? Of course. This is the domain industry, after all. We swim in sales pitches from individual sellers as well as corporations. That’s as true of the nTLD program as it is of the Chinese sector. The only difference is that propaganda for the latter found traction.
Is this a bubble? Quite possibly it is, although demand is more inflated in some areas than in others.
Has there been “lying and collusion” of the deliberate pump-and-dump variety? Let me put it this way. Lying and collusion goes on pretty much daily in the Western domain market. (Shill bidding is a prime example.) So it’s unthinkable that China doesn’t have its bad actors in equal measure. The real question is whether such fraudulent activities can explain a significant chunk of the Chinese upsurge. That I don’t know.
But here’s food for thought. Maybe in the West criminals behind a pump-and-dump scheme would need to loudly promote the shares they’re pumping. But in China it seems market manipulators would only need to “seed” the system. Just arrange some artificial scarcity with buyouts and then orchestrate some rapid price climbs. At that point, Zhuang Jia bubble-chasers as well as ordinary speculators would take over, watering the “seed”, inflating prices with transactions of their own and inflating the bubble.
Apparently, the Chinese investment culture is primed for this sort of thing. Large price swings might begin as pump-and-dump seedlings, but most of the growth – as Bloomberg points out – comes from speculators piggy-backing on the initial market manipulation. So what has been happening in the Chinese stock market is simultaneously a pump-and-dump operation AND a natural “speculative frenzy”.
Chinese investors looking for Zhuang Jia might even MISTAKE natural price movements for market manipulation. In that case, they’d do their best to buy into a perceived bubble. Then the price inflation becomes a self-fulfilling prophecy – even with no real pump-and-dump schemers!
It’s interesting how quickly the Chinese domain sector began imitating the stock market. CHIPs and numerical domains are traded as if they’re stock shares in a phantom company. Websites like ChaoMi even portray daily ups and downs in domain subcategories, as if each subcategory were a separate stock. Personally, I have grave misgivings about looking at domains in that way. But I won’t get into that.
My point is simply this: All the trappings of stock-market investing have entered the Chinese domain sector – much more so than in the West. With all the tickers and graphs and high-volume trading, why would Zhuang Jia be the 1 aspect of Chinese investment culture NOT to cross over into Chinese domaining? My guess is that Chinese domainers imported that habit of pump-and-dump market manipulation also, like a stowaway species aboard a ship bound for the New World.
“In some cases, multiple manipulators team up to trade shares among themselves, creating an illusion of growing investor demand that’s designed to attract momentum-chasing speculators”
That’s happening in western domaining for years.
I got some LLLL.com sales as well mostly mid-low $$$$. All of them are now owned by a what it seems chinese domain marketplace.
The Chinese stock market crash was a function of people being able to borrow money for next to nothing that they could then invest in stocks. In the US individual retail traders aren’t allow to access more than about 2x leverage (maintenance margin on short positions is 50%). In China it was about 6x.
I think the domain market may be the beneficiary of money moving into a new asset class, but I also think that Chinese investors see benefit. There are about 2 billion people in China with millions entering the middle class annually. Not to mention their use of technology is more advanced than ours in metropolitan areas. I think the internet as we know it and relate to it will be very different for the Chinese when more of the citizens are integrated into the broader economy and have entered the lower-/middle-/upper- middle class.
The problem with a pump and dump in the domain market is that no professional domainer will sell once they get a bump,then buy back at a higher price in anticipation of another jump in price. If anyone gets caught holding the bag it will be the Chinese citizen that got a P2P loan on one of the more than 200 platforms available then purchased the domain for mid $x,xxx from the guy who got it for high $xxx to low $x,xxx.
@kaleholdings,
I keep seeing that 2 billion number. Where are people getting that from?
The sources I’m seeing put the population of China at 1.357 billion, just barely ahead of India’s 1.252 billion. (India will probably overtake China soon.)
Part of the reason I ask is that I saw that 2 billion number being thrown around by Domain Shane (Cultra) last November. I replied with a link to Wikipedia, asking where he got that round number from. Instead of answering, he deleted all the comments I had ever made on his website, put me on permanent block, and sent a paranoid letter to Andrew Allemann and (for some reason) Elliot Silver.
Maybe there’s a credible source for 2 billion people in China. But I’d like to stop the spread of misinformation. I may be banned at DomainShane and DomainSherpa, but here at DomainNameWire we can (I hope) at least discuss the actual population of China.
Joseph-your 1.357 number is from 2013. Don’t ban me! lol
Yes, I’ve seen numbers approaching 1.4.
“In the US you can only borrow 2x for stocks” Anyone can buy futures and it’s 40-1 leverage.
People have put forward various theories to justify the 2015 surge in Chinese domain prices. Having those hypotheses to consider is a good thing, even though some explanations won’t hold up to scrutiny. Everybody should feel free to think openly.
Much of the time, explanations center around China’s size – its overall population, its economic power, the supposed number of rich people, the growth of the middle class, etc. Such factors do support the idea of a strong Chinese domain market. We could make a case for sustainable growth this way … but not a sudden surge … not outright price levitation.
China’s size cannot explain why an LLLL.com worth only $20 yesterday should be aggressively traded at $2500 today. China was just as big in 2014 as in 2015. Yet 2015 saw near-vertical price climbs whereas 2014 didn’t. Essentially we’re looking at a controlled experiment. Population and economic buying power were held constant, but we saw drastically different results. Whatever the explanation of this Chinese surge may be, China’s size isn’t it. Every year prior to 2015 refutes that hypothesis.
Yep, it’s a bubble, better know when to get out.
Educational article Joseph, thanks. A very Healthy and Prosperous 2016 for You and Yours
It is still the wild west when it comes to numbers, one thing that cannot be argued is that they are buying up generic one word domains and 2 letters at all time highs. Also buying revenue names and at all time high.
They’re investing big time whether or not numeric names will goes down quickly remains to be seen. With so many people owning so many different numeric names I don’t see it happening that quickly.
You could compare this to a Ponzi scheme if one wanted to but I doubt it.To many owners and to many names. What if number names where used as type of bitcoin for savings and defined a value in China. Never know??
@DonnyM,
Nobody I know of regards this Chinese surge as a Ponzi scheme. In a Ponzi scheme, you’d give me $1 and I’d promise you $2. When you ask to receive the money I’m managing on your behalf, I’d only be able tov pay you using the $1 inputs from other customers – money they think safe and secure.
I can think of a couple of prominent domainers who were caught doing something (arguably) along those lines … after they ran out Peters to rob to pay the Pauls. But a Ponzi scheme doesn’t account for what’s happening in the Chinese sector. People aren’t entrusting their money to others; they’re buying assets that they themselves control and hope to resell. Utterly dissimilar situations.
A pump-and-dump operation behaves quite differently. In that case, what I’d do is buy up a large stake in X. Then I’d ensure prices begin to rise sharply in X. How? By manufacturing fake sales. Then I’d publicize the rising prices in X. As speculators gravitate to buy up X from me and others, prices go up further. More publicity causes more buyers to jump aboard the bandwagon, which leads to more acceleration in prices, etc. etc. etc. That’s the pump. At a certain point when the market is high, I dump X. For quite awhile even after the dump, people continue to trade X. But the momentum eventually slows and prices eventually correct downward because, after all, the real market value of X was something we shot past long before in a burst of speculative euphoria.
While the Chinese surge isn’t a Ponzi scheme in any way, shape, or form, I have compared it to an inadvertent pyramid scheme. I’ll explain why I think this description fits.
First consider this example. Suppose I found a Letter Writing Club. I send out 10 invitations. For $10 each, those 10 people become members of my club. What do they get? They get 10 invitation letters to send out. So everybody pays $10 but makes $100 by recruiting 10 more members. Everybody profits, right? Yes, until recruiting slows.
Now compare the Chinese domain sector. People are mainly buying these domains not to use them but to resell them. Resell them to end users? No, a trader intends to sell to other traders just like himself. How can someone make money that way? On average, in a market with stable prices, he CAN’T. But traders expect prices to keep going up; so they keep buying at today’s full price. What causes prices to go up? Attracting more and more traders willing to bid against each other more aggressively for a chance to enjoy more and more growth. As with the Letter Writing Club, prices will stop rising when domain traders run out of more traders to recruit. They have nobody to trade with but themselves.
If I had to bet 80% of domain sales were “Gang Related”.
Another words from one domainer to another…like a great joke everybody wants a chance to take the credit for. If you think about it generally gang members shoot at each other; not the police, schools, GMO producing corporations or bad guys “unaffiliated”. If Konstantinos popped off a blog that could prove the percentage of true end users that CREATE a visible functioning website vs. dudes chasing each other around saying “whatcha think”??? Hell the market might cave lol!
Peterson check this out:
.http://www.domaininvesting.com/monte-cahn-predicts-namescon-auction-will-be-largest/
Thanks for the foresight Joseph! I am the guy seated behind you paddling as well. The S.S. Bullshit is a custom Cruise Liner for those that know best! I looked at the market as the Chinese were gonna make there own “floor”. In this they would buy a domain at $1000 that would be viewed as worth say 200 by most…when they amassed the vast majority of short (mostly new “thin” extensions) they would start a new “sector” of selling with a new floor. That on the surface was what I thought the game plan was. I made most of this decision based on the .club purchasing. I can honestly say .club .xyz and .io are the farthest from making sense on this planet!!! Why would these obscure terms mean crap when they have basically just been released? I don’t ever remember seeing any domain sales with “club” in the title…so to see folks freak out over club made me say WTF? ? ? ? If I wanted a real presence Chinese or not it WOULD NOT BE ONE OF THESE REGARDLESS THE LETTERS BEFORE IT! Now I get it new players all the time but please this goes completely against the grain. If domain extensions like .tv, .us, .me and .co can’t be given away yet there is blood in the streets for .club, .xyz and .io? WHY? Xyz represents the end…club represents just one singular avenue…io…please…no one outside of programmers get’s that they just buy into it! Will there ever be a .OI??? Let me guess no because it will confuse…pump and dump glares mostly because of the fact these terms are nothing really good at all yet continue to be shown on sales reports. I think we are also finding two and three letter domain names are as rare as free advice….? So why are they so popular? The market is completely FLOODED with “rare” three letter domains…no such thing…try replacing DubaiDeals.com…ain’t gonna happen but anybody can fart out three letters and claim it means something I am sure!!! Great work for speaking out…love to know why someone would ban you from their blog…please do tell!
Hi Don,
I’d offer what I’ve written here or anywhere not as “the Truth” but as food for thought, including productive criticism from people who disagree with me. There are a lot of factors at work at the same time, and it’s hard to judge with confidence how much of the Chinese surge is explainable in terms of what. History is complex. And what we witnessed in 2015 is a weird but significant little scrap of history.
As far as .XYZ, .IO, and .CLUB making no sense goes, there I partly agree and partly disagree.
Of the three, .CLUB is a real word, dating back 350 years. Shakespeare wouldn’t have recognized it in our sense, but it began to be used for social gatherings about 60 years after he wrote “Hamlet”. It’s been with us awhile, and the British Empire brought it along with them all over the world as a loan word.
China does like numerics and short literal strings. So if they recognize .CLUB, it isn’t inconceivable that they’d use it. That mixed style does strike me as bizarre; but foreign customs often do, don’t they? The mad rush to buy Chinese-style .CLUBs seems overly speculative, but only time will tell. Meanwhile, there’s some genuine interest in .CLUB within the Western markets. Buyers have sought out .CLUB domains and bought them from me with zero interaction. That’s a trickle, not Niagara; but it’s real enough. A few .CLUBs sold at auction Monday at NamesCon for decent prices. And I spoke with a guy – an end user – who paid mid $x,xxx for a .CLUB just today. It wasn’t in the NamesCon auction. As an end user, he’ll probably use it.
Never yet owned a .IO myself, but I do see it being used within the tech sector. In fact, I frequent a few websites built on .IO. Quite some time ago, I urged caution with .IO, which seemed to be experiencing a bit of a price bubble at Flippa back then. The data by now can support or refute my hunch. And you can decide for yourself whether or not that was a bubble an whether it has since deflated.
The notion of .IO standing for “input / output” really only appeals to a tiny audience, but geeks are a proud minority. Gathered together that group might fill Rhode Island. I do see the appeal here in the West. But I’d be surprised if .IO succeeds in China, a country famous (among domainers) for disliking vowels.
.XYZ? Who on earth knows!