This post was co-authored by Marc Lindsey, President and Janine Goodman, Vice President of Avenue4.

When 2015 began, there were several million IPv4 numbers still in the American Registry for Internet Numbers (ARIN) IPv4 free pool, ARIN was processing 4-5 unique IPv4 transfer transactions per month, and fewer than 5 million numbers had been transferred publicly in the prior 12 months. The end of 2015 told a different story. In late September, the ARIN free pool was depleted. During Q4, the IPv4 trading market was the only source available to obtain IPv4 numbers in North America, and by the close of the year ARIN had recorded 194 transfers conveying over 34 million IPv4 numbers. Because a non-trivial portion of IPv4 transactions occur outside of the ARIN transfer approval process, even these high-growth numbers understate the total market activity in 2015.

Conditions suggest that trading volumes in 2016 will continue to escalate. ARIN’s free-pool supply will no longer operate to dampen demand within the region. The pent up demand from Europe and the Middle East will also draw down on the North American market supply as buyers and sellers take advantage of RIPE NCC’s recently implemented inter-RIR transfer policy, which opened up transfers between the RIPE, ARIN and APAC regions.

Specific Transfers and 8.4 Inter-RIR Transfers in 2015 – ARIN market activity (measured both by the volume of IPv4 numbers transferred, and number of separate transactions, within the ARIN region and into or out of the APAC and European regions) has been on an upward trajectory since July 2015. (Click to Enlarge)

The total supply of numbers in the market is also contracting. Although the inventory of IPv4 numbers generally remains strong, the inventory of large contiguous blocks available for sale has substantially diminished. Many large buyers with available liquidity and reliable business forecasting used surplus market conditions to purchase large amounts of address space at discounted prices. At one point, for example, there were several /8 (16,777,216 numbers) holders ready to sell off most or large portions of their blocks. By the end of 2015, many of these large blocks had been parceled out.

Pricing trends in 2015 mirror this shift in the balance of supply and demand. At the beginning of 2015 (when ARIN was still handing out numbers for free and there was a glut of large blocks for sale) prices were at their lowest levels to date. By the end of 2015 (after ARIN’s free supply was depleted and several large block transfers recorded), prices trended up slowly. We expect further pricing gains in 2016, but at a higher rate in response to the upward pricing pressures discussed above.

Data from last year also revealed a strong negative correlation between block sizes and unit prices. The unit price for a /24 (256 numbers), for example, was almost 2x the unit price for a /12 (1,048,576 numbers) or larger block. This trend will likely continue. However, the spread between large block and small block unit prices is expected to shrink. Many remaining large block holders are holding out for higher prices for a variety of reasons. Some potential large block sellers will only participate in the market when the values they expect to realize will deliver adequate returns after offsetting the significant costs they will incur to revise their numbering plans in order to free up address space. We also anticipate that some larger address space holders will decide to avoid volume discounting, and elect to sell their inventory in smaller increments in order to realize higher per-number valuations. Large contiguous blocks will become scarce.

IPv6 migration has had a negligible effect on the marketplace. Significant purchases by heavyweight tech-sector companies in 2014 and 2015 suggests that they expect to expand their IPv4 infrastructure over the next 3 to 5 years even as they design, develop and deploy their IPv6 infrastructure and networks. Internet traffic data shows that IPv6 connectivity is growing, but so is IPv4. At some point these growth trends will diverge, but for now (and the foreseeable future) IPv6 and IPv4 are both on the rise.

A full analysis of the IPv4 market, with additional data, can be found in Avenue4’s 2015 Annual State of the Market Report.