Categorized | Brainstorming

To Which Extent Can Big Players Manipulate the Short Domain Market?

Posted on 13 April 2016 by Andrei

There are definitely some *very* deep pocketed players in the short domain market and without a doubt, their actions can and do influence the entire short domain space… but to which extent?

The short domain market is ridiculously small compared to other asset classes so sure, it is considerably more prone to volatility. If someone wants to buy let’s say 500 LLLL chips right away for example then needless to say, the price will shoot up aggressively. Supply and demand 101. The same way, of someone wants to sell 500 LLLL chips right away, the downward pressure on chip prices will be humongous.

But I think people tend to give big players too much credit and I’ll try to explain why.

One the one hand yes, their actions move the market.

But, and this is the main aspect I want to get across, they cannot (in my opinion) SUSTAINABLY alter a strong trend.

1) Can they exacerbate the current trend? For sure. So if short domains are in an uptrend and a huge buyer wants to acquire 500 chips quickly, gasoline will be added to the fire and the uptrend can be exacerbated. The same way, if a big chip holder panics and decides to flood the market with 500 chips during a downtrend, the downtrend will be exacerbated to the downside.

2) Can they CHALLENGE or TEMPORARILY alter the main trend? Yes, they can. So if we’re in an uptrend and someone decides to sell 500 chips, prices will go down temporarily but if the uptrend is genuinely strong, the market will absorb that inventory and continue the move up. The same way, if someone wants to buy 500 chips during a downtrend, he might be able to make prices move upwards temporarily but the fuel will soon run out if the other players are in a more pessimistic mode.

The same principle is valid when it comes to bigger markets, the stock market for example. Or the silver manipulation by the Hunt brothers many years ago. And so on.

Big players can definitely manipulate markets temporarily and use that advantage to scalp profits.

In domaining, in the stock market and so on.

But SUSTAINABLY altering the main trend is an entirely different story.

This is why I for one am skeptical when it comes to domaining conspiracy stories such as “big players have it all under control”… that’s highly unlikely.

A lot of domainers might think that and some of the big players are probably delusional enough to agree with them but market forces can humiliate even the most well-funded player. Even in cottage industries such as domaining, the market always speaks and sustainably altering the trend is faaaaar easier said than done 🙂

2 Comments For This Post

  1. Todd Says:

    I agree. I hold far more than 500 LLLL CHIPs and if I offered all at no reserve on a single day, prices may certainly be soft on that day but they would be easily absorbed into the market without a crash.

  2. Joseph Peterson Says:

    I agree with you, Andrei, that 1 person rapidly buying or selling 500 CHIPs will have a fairly limited short-term impact. After all, that’s only 0.3% of the broader inventory. And that’s a drop in the ocean. (Here I’m assuming, for the sake of simplicity, that all 160,000 CHIPs are being traded rather than used as, say, websites.)

    But there are other ways large owners have manipulated the market. Creating artificial scarcity, for example. Floor prices don’t rise much until 100% of a category is registered. After all, buyers can simply go hand-reg something else.

    So instigating that initial buyout is absolutely crucial if you’re trying to force prices to rise. We saw this happen in categories like 5L and 6N and CHIPs. More recently, we saw this happen in a host of nTLDs where Chinese speculators are trying (somewhat pitifully) to recreate the initial conditions of the 2015 surge.

    Large buyers play a HUGE role in this early stage. Not only do they claim a large stake and push the space closer to the 100% saturation point, which is where prices begin rising. It’s more than that. Their sudden big purchases together with plenty of hype create a contagious sense of momentum, of inevitability.

    Other domainers, eager to get in on the ground floor, early enough to ride a rise in prices, jump aboard the buyout, pushing it to completion. And this same momentum spills over into early trading aboe reg fee, pushing up prices. Chinese investors are literally trained to watch for this kind of market manipulation, called “Zhuang Jia”. Big buyers set the process in motion, and they rely on many small buyers to join in.

    Big buyers are influential in the EARLY stages when buyouts are just beginning or when prices are low enough to grab big chunks of the asset class. I’m not talking about 500 domains (0.3%). I mean 10 o 100 times that amount – a 3% or 30% share. That has indeed happened. Especially if you view a group of investors acting together as a team.

    Buyouts don’t just take place at reg fee ($8) or at sale price (50 cents). While an asset class is trading at $17 or $40, these big players can still afford to buy it up in huge swaths. After they create artificial scarcity below $40 by buying up half of all domains priced below $40, then other traders will finish THAT buyout too. And that creates still further momentum, leading to appeciation.

    In these early stages, while pricing is low, big players wield big influence. Later on, after prices have risen substantially, the system begins to flag or even fall apart. At a certain point, without enough new traders being lured to buy into the market, the market loses steam. Few investors can afford to continue buyouts at the 3% or 30% level AFTER they’ve pushed prices up. They tossed a ball up in the air. At first, it went fast. Finally it slows, stops, and comes falling back down.

    At this point, they abandon that game and go in search of another. As you say, there’s no point trying to manipulate the CHIP market when it’s trading high AND already falling. That’s why in 2016 the big players in China began throwing their money at cheap nTLDs, buying up hundreds of thousands of CHIPs, 5Ns, and 6Ns in suffixes like .WANG, .TOP, .RED, .SITE, .CLUB, and .PET. They’re trying to start again in a cheaper niche where their money can leverage a bigger slice of the pie.

    Those smaller bubbles are likely to fizzle out pretty fast. There are just too many. And the decline of the earlier bubbles is, by now, just too obvious.

    This isn’t a “conspiracy theory”. It’s all discussed in the open.