How the market crash may impact domain name investing
This year, just about every market is down so far: stock markets, crypto markets, and even NFTs.
These markets are whipsawing. The major stock markets have entered correction territory and some are even bear markets. Some cryptocurrencies have lost nearly all their value, while others are off 30% or more.
This market correction could impact domain name investing in a handful of ways. Investors sitting on a pile of cash might find opportunities to buy, but there might also be fewer end users interested in buying aftermarket domains.
The wealth effect
The first way the market correction could impact domain investing is that domain investors themselves might be feeling a little poorer. Because they keep a keen eye on digital assets, many domain investors bought into cryptocurrencies and NFTs.
With those assets worth less, these investors’ balance sheets don’t look as good as they did last year. These investors might be less likely to buy domains as an investment.
This could be a good thing or a bad thing, depending on how you look at it. It’s a bad thing if you sell domains to other domain investors. It’s a good thing if you usually sell to end users because there might be fewer dollars chasing domains at auction, giving you a chance to load up on domains with less competition.
The impact might be delayed a bit. Investors will keep buying with the hopes that things turn around, only to take their feet off the pedal if the markets remain suppressed.
One caveat to this: with cryptocurrencies and other Web3 assets being hit disproportionately hard, some investors in those assets could decide to spend more on domains instead, feeling that they are a better bet in the long term.
Venture capitalists depend on robust markets for their investments to have “exits” by selling or going public. When public valuations wane, so can startup valuations.
This could mean fewer startups get funded, and the startups that do get funded might not get as generous of a round as they would have a year ago.
It might also cause startups to tighten their belts. If they’re deciding between laying off people and upgraded to a great domain name, they might decide to hold onto the employees.
Y Combinator recently warned its startup portfolio companies to plan for the worst. It advised the companies to cut costs to extend their runway. Y Combinator warned that, during economic downturns, even top-tier venture capital funds with lots of cash will be more careful about handing it out.
The greatest impact of less startup funding would probably be on the higher end of the domain name market. A lot of companies buy six and seven-figure domains after raising a big round of funding.
It’s difficult to tell how the lower end of the domain market will fare. When people tighten their belts, they are willing to spend less on domain names. But if a recession leads to job losses, more micropreneurs might start businesses.
The number of new people starting businesses tends to grow during recessions as laid-off people open a business. Even gainfully employed people might start a business on the side to protect themselves and earn extra money.
These very small businesses often buy aftermarket domains that are $5,000 or less.
It’s unclear if this will happen, though. Unemployment is at historic lows. Businesses are struggling to find enough workers across the spectrum, and many people are job-hopping to get higher salaries.
And yet, some companies are instituting hiring freezes or layoffs as they realize they need to get to profitability or won’t be able to count on as much outside funding in the future.
The only thing we have to fear
Markets have been declining so far this year, but it’s hard to know what will happen in the future. People are really good at predicting recessions that never materialize.
It might require a sustained asset price drop to have a noticeable impact on domain investing. But preparing for a potential “domain investing recession” is essential.