Conclusion
Domain names take their place as the new ‘virtual real estate’
Since bitcoin was released as open source code in 2009, the cryptocurrency’s average rate
of return has been around 176%. However, bitcoin’s USD cash value has seen it fall by more
than 80% in a little over a year, highlighting the cryptocurrency’s substantial volatility, which
has in turn largely prevented it from becoming a serious investment option for most people.
During the same period, stocks have returned an average of 21.2%, bonds 8.9%, domain
names 3.0%, and real estate 1.2%. As demonstrated in these average growth figures over the
past nine years, domain names present a competitive investment instrument when
compared to other traditional investment tools in terms of growth, investment stability and
return.
Moreover, aside from domain names’ rate of return and relatively moderate levels of
volatility, buying into domain investing can be inexpensive when compared to investment
tools such as real estate, which can present a high financial barrier to entry for investors,
while attracting additional costs such as land and property taxes. By contrast, ongoing
annual maintenance costs for domain names can be in the range of US$10 to 15 per annum.
Additionally, earning through domain investing is not limited to capital gains alone but also
through domain leasing, which can be carried out via Escrow.com. In this way, among
others, investing in domain names can be compared to investing in real estate, positioning
domain names as a new kind of ‘virtual real estate’.
Other parallels with real estate investment can be drawn when considering some of the
factors that make certain domain names more valuable than others. For example, domain
names comprised of two characters tend to be bought and sold for substantially more than
those with three, four or five characters. In this way, two-character domains can be thought
of as ‘High Street’ real estate, in which higher demand, higher traffic locations result in higher
prices.
In the traditional property market, the best commercial real estate address typically
commands the greatest price. Likewise, in the virtual world, the best address -- or domain
name -- usually attracts a higher asking price when it is bought or sold.
The commercial real estate market has typically experienced steady increases in prices for
sought after commercial real estate. At the same time, the domain name market has also
seen a rising number of multimillion-dollar transactions -- US$5 million and above -- for
domain names that are in high demand.
However, while traditional commercial real estate in high-traffic areas can command
premium prices because they can draw more customers from the immediate physical
region, the virtual real estate provided by domain names can attract customers from
anywhere around the world with an Internet connection, marking domains as an investment
option with greater scope, opportunity and, ultimately, greater value than traditional real
estate.
Refer to the inaugural Escrow.com Domain Investment Index below for a detailed snapshot
of the domain name market over the past three months.