Better buy: Coinbase vs. Ethereum

The crypto winter has crushed valuations for tokens and companies that operate trading exchanges. Ethereum‘s (ETH 4.48%) the price has fallen approximately 65% ​​from the record high set in November 2021. Meanwhile, leading exchange services provider Coinbase Global (COIN 10.62%) has seen its valuation plummet 81% from its peak.

Would investors be better off putting their money behind the leading Layer-1 blockchain service provider’s ether token or buying Coinbase shares based on current price levels? Read on to see why two Motley Fool contributors have different opinions on what looks like the better investment right now.

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Ethereum is a category leader in blockchain services

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 target for those looking to build, deploy and scale blockchain-based applications, and this foundation provides a fundamental fundamental support for the value of the Ether token.

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 may appear to be lower risk based on the fact that its core business is to provide trading and holding services for the wider 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 believe that most of these coins will likely trend towards zero on the valuation scale, and it seems almost inevitable that even some relatively high-profile projects will eventually blow up major scandals.

Coinbase has already had some scandals of its own — including security breaches, insider trading and allegations of inadequate anti-money laundering protections.

The crypto industry is still very much in its infancy, and the low barriers to launching and promoting a token mean that investors should take a very selective approach to their investments in this sector.

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

In general, I believe that investors should only focus on crypto projects and related companies with proven track records. Ethereum fits the bill, has proven to be relatively scandal-free, and can withstand the rise and fall of other projects and businesses in the crypto industry.

Coinbase has shown its potential

Parkev Tatevosian: Coinbase stock has been hammered in recent quarters due to the decline in popularity of cryptocurrencies as an asset class. In the early stages of the pandemic, the total market value of all cryptocurrencies reached $3 trillion. That figure has dropped to around $1 trillion.

Coinbase, a platform that allows users to buy, hold and sell digital currencies, attracted millions of new customers during the crypto frenzy. Admittedly, many of these people will leave if the popularity and prices of crypto-assets do not recover. Still, Coinbase stock could be lucrative for investors as long as it can retain a meaningful portion of its early customers.

The explosive growth peaked in 2021, when Coinbase’s revenue reached $7.8 billion and operating income reached $3 billion. It showed investors how much profit it could generate on a large scale. It will have to reduce spending to match a smaller scale if the industry does not return to pandemic heights.

COIN P/S ratio data by YCharts. P/S = price to sell.

There is a risk that Coinbase may not be profitable on a smaller scale. However, the stock trades at a price-to-sales ratio of 4.5, which is significantly below the ratio of more than 18 at its peak. The stock may have high risk, but it also has a lot of upside for investors with a high risk tolerance.

So what is the best buy?

For investors seeking broad exposure to the crypto space, investing in both Ethereum and Coinbase may be the right move. Otherwise, it makes sense to focus on their different characteristics, strengths and weaknesses and then decide which potential investment vehicle is better aligned with the direction you see the crypto space heading.

If you want to take a narrower approach to investing in crypto and believe that Ethereum will continue to be a top network service provider, then it is probably the better buy. On the other hand, if you’re positioning yourself for a general upturn in crypto valuations and are seeking investment vehicles that have a diversified exposure to the broader market, Coinbase stock is probably the best fit for your investment priorities.