Better to buy: Coinbase vs. Ethereum

The crypto winter has wiped out valuations for tokens and companies that operate trading exchanges. ether‘S (ETH 3.24%) The price is down about 65% from its record high set in November 2021. Now the leading provider of stock market services Coinbase Global (COIN 10.62%) has seen its valuation plummet 81% from its peak.

Would investors be better off putting their money in the leading Layer 1 blockchain service provider’s Ether token or buying Coinbase stock based on today’s price levels? Read on to see why two Motley Fool contributors have different views on what seems like the better investment right now.

Image source: Getty Images.

Ethereum is a leader in the blockchain services category

Keith Noonan: Launched in 2015, Ethereum has proven its staying power and established itself as the clear leader in Layer 1 blockchain services. The company’s network has become the go-to place for those looking to build, deploy and scale blockchain-based applications, and this foundation provides important foundational support for the Ether token’s value.

If Ethereum continues to attract new projects and facilitate their growth, it should create demand for the Ether token and be a price catalyst.

While Coinbase appears to have lower risk due to the fact that its core business is providing trading and custody services to the broader crypto ecosystem, I actually see this as a source of greater risk.

Coinbase’s platform allows users to easily buy and sell an incredibly wide range of cryptocurrencies, but I think most of these coins will likely tend to zero on the valuation scale, and it seems almost inevitable that even some relatively high-quality ones will Projects eventually burst become embroiled in major scandals.

Coinbase has had a few scandals of its own, including security breaches, insider trading, and allegations of insufficient anti-money laundering protections.

The crypto industry is still in its infancy, and the low hurdles for launching and promoting a token mean that investors should be very selective about their investments in this sector.

I see the vast majority of crypto projects as very low quality, so the prospect of investing in a company whose core services revolve around crypto trading and wallet services doesn’t seem appealing. In comparison, Ethereum has already proven to be a much higher quality project.

In general, I think investors should only focus on crypto projects and related companies with a proven track record. Ethereum fits the bill, having proven relatively scandal-free and able to weather the rise and fall of other projects and companies in the crypto industry.

Coinbase has proven its potential

Parkev Tatevosian: Coinbase stock has come under pressure over the past few quarters due to the waning popularity of cryptocurrencies as an asset class. In the early stages of the pandemic, the total market cap of all cryptocurrencies reached $3 trillion. That number has dropped to about $1 trillion.

Coinbase, a platform that allows users to buy, hold, and sell digital currencies, has attracted millions of new customers during the crypto craze. Granted, many of these people will leave if crypto asset popularity and prices don’t recover. Still, Coinbase stock can be lucrative for investors as long as it can retain a significant portion of these early customers.

Explosive growth peaked in 2021, when Coinbase’s revenue hit $7.8 billion and operating income hit $3 billion. That showed investors the magnitude of the gains it could make at scale. It will have to cut spending to accommodate a smaller scale if the industry doesn’t return to pandemic highs.

COIN P/S ratio data from YCharts. P/S = selling price.

There is a risk that Coinbase may not be viable on a smaller scale. However, the stock trades at a price-to-sales ratio of 4.5, well below the 18-plus ratio at the peak. The stock may come with a high level of risk, but it also has plenty of upside potential for investors with a high risk tolerance.

So what’s the better buy?

For investors looking for broad exposure to the crypto space, investing in Ethereum and Coinbase could be the right move. Otherwise, it makes sense to focus on their distinct characteristics, strengths, and weaknesses, and then determine which potential investment vehicle is better aligned with the direction you see the crypto space taking.

If you take a narrower approach to investing in crypto and think Ethereum will continue to be a top network service provider, then it’s probably a better buy. On the other hand, if you’re positioning for a general recovery in crypto valuations and are looking for investment vehicles that have diversified exposure to the broader market, Coinbase stock is likely a better choice for your investment priorities.