Fewer Transactions But Higher Trading Volumes in Liquid Short Domain Names: LXDO Report

By November 15, 2017 Aftermarket No Comments

GGRG_Brokerage_Consulting_logoChinese registrants, including domain investors, own close to a third (29.48%) of all liquid domain names, that is, those that are actively traded on the major marketplaces, and dominating the numeric categories of 2N (numeric), 4N and 5N. The US is a distant second at 16.72%, while still remaining the largest owner of 2Ls (letters – 37.57%) and 3Ls (36.87%). These are some of the key findings in the latest Liquid Domains Market Overview (LXDO) for the third quarter of 2017 from GGRG Brokerage Consulting.

The report also found there was a low turnover rate (0.56%) for the quarter, appearing in stark contrast with the largest escrow.com sales volume reported to date. While BitCoin and other cryptocurrencies keep posting above average returns, the 5th percentile values of the most traded liquid domain names continue their descent, with one major exception. The Q3 edition of the LXDO features for the first time the percentage of domains under privacy and Chinese translation. In this edition, to ensure the accuracy of the data, domain names under privacy will be considered as their own category, since it’s not possible to not effectively tell if a domain under privacy is owned by a registrant from the same country of the privacy service.

According to the new distribution, as noted China is still the largest owner of liquid domains at 29.48%, dominating the numeric categories of 2N, 4N and 5N. The US is a distant second at 16.72%, while still remaining the largest owner of 2Ls (37.57%) and 3Ls (36.87%). Total privacy percentage is at 21.32%. It is interesting to note that the most valuable categories with low development index have the highest number of domains under privacy.

There seems to be a positive correlation between: 1) the average domain value per category; 2) the percentage of Chinese ownership; and 3) the number of domains under privacy in that category. In other words, the more valuable the domain, the more likely it is that it is going to be under privacy: 48% of 2Ns are under privacy, compared to 28% for 5Ns and only 20% for 4Ls.

As anticipated by GGRG, Q3 presented the lowest turnover rate in disclosed sales ever seen at 0.56%. This might be due to a few factors the report notes, including the seasonality (summer months are typically slower) and reduced investor activity. The aggregate value of disclosed transactions went down 58% from $12.9M to $5.4M. The disclosed sales volume is in contrast with the sales reported by escrow.com, which increased significantly for 3Ls, 4Ls and 5Ns, as a consequence of large end user sales or unreported portfolio transactions in these categories. According to escrow.com, the most traded category this quarter were the 3Cs category, with $8.6M, and $24.4M in sales in the aggregate.

The 5th percentile values continued to go down across the board, with 3Ls losing 12.94%; 5Ns losing 12.28%; and 4Ls stable, declining a modest 1.67%. The notable exception were again the 3Cs, which presented a 25.91% increase. This reflects GGRG’s Q2 forecast and could be due to the increased sales volume and to the attention brought to the category by the recent inclusion of the 3C category in the last LXDO report (there was a similar value boost on the 2Cs after the first LXDO edition was published).

Looking ahead, the report predicts the large volumes of undisclosed transactions, combined with fewer buyers active in the investor market, might bring back price polarisation in the liquid domain categories. Price polarisation is more common in markets with low turnover, where comparable sales are less effective in predicting sales prices and establishing value benchmarks. This in turn might cause decreased asset liquidity. This combination of lower liquidity, with the overwhelmingly positive returns for bitcoins and other cryptocurrencies, might cause investors to shift their focus away from the domain market when looking at alternative ways to store wealth. At the same time, the exceptionally high escrow.com sales volume means that there are still great arbitrage opportunities for the investor who carefully selects the quality of domains as opposed to focusing on quantity.

The report is available to download in full from the GGRG Brokerage and Consulting website at:
ggrg.com/industry-report