The crypto winter has crushed valuations for tokens and companies that operate trading exchanges. Ethereum's (ETH 2.03%) price has fallen roughly 65% from it's record high set in November 2021. Meanwhile, leading exchange-services provider Coinbase Global (COIN 6.37%) has seen its valuation plummet 81% from its peak.
Would investors be better off putting their money behind the leading Layer-1 blockchain services provider's ether token or buying Coinbase stock based on today's pricing levels? Read on to see why two Motley Fool contributors have differing takes on which 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 proved its staying power and has established itself as the clear leader in Layer-1 blockchain services. The company's network has become the go-to destination for those looking to build, deploy, and scale blockchain-based applications, and this foundation provides a key fundamental support for the value of the Ether token.
If Ethereum continues to attract new projects and facilitate their growth, that should create demand for the ether token and be a price catalyst.
CRYPTO: ETH
Key Data Points
While Coinbase might appear to have lower risk based on the fact that its core business is providing trading and holding services for 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 that most of these coins will probably trend toward zero on the valuation scale, and it seems almost inevitable that even some relatively high-profile projects will eventually blow up in big scandals.
Coinbase has already had some scandals of its own -- including security breaches, insider trading, and allegations of insufficient safeguards against money laundering.
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 highly selective approach to their investments in this sector.
I view the vast majority of crypto projects to be of 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. By comparison, Ethereum has already proved itself to be a much higher-quality project.
In general, I think that investors should only focus on crypto projects and related companies with proven track records. Ethereum fits the bill, has proved to be relatively scandal free, and can stand through the rise and fall of other projects and businesses in the crypto industry.
Coinbase has demonstrated its potential
Parkev Tatevosian: Coinbase stock has been hammered in recent quarters due to the decrease in popularity of cryptocurrencies as an asset class. In the early stages of the pandemic, the total market capitalization of all cryptocurrencies reached $3 trillion. That figure has dropped to about $1 trillion.
Coinbase, a platform that lets users buy, hold, and sell digital currencies, attracted millions of new customers during the crypto frenzy. Admittedly, many of those folks will leave if the popularity and prices of crypto assets don't recover. Still, Coinbase stock can be lucrative for investors as long as it can retain a meaningful portion of those early customers.
The explosive growth peaked in 2021, when Coinbase's revenue reached $7.8 billion and operating income hit $3 billion. That showed investors the magnitude of profits it could generate at scale. It will need to lower expenses to match a smaller scale if the industry doesn't rebound to pandemic highs.
COIN P/S ratio data by YCharts. P/S = price to sales.
There is a risk that Coinbase might not be profitable on a smaller scale. However, the stock is trading at a price-to-sales ratio of 4.5, which is significantly below the ratio of more than 18 at its peak. The stock might come with high risk, but it also has plenty of upside for investors with a high risk tolerance.
So which is the better buy?
For investors seeking broad-based exposure to the crypto space, investing in both Ethereum and Coinbase could be the right move. Otherwise, it makes sense to focus on their differing characteristics, strengths, and weaknesses and then determine which potential investment vehicle is better aligned with the direction you see the crypto space heading in.
If you're looking to take a narrower approach to investing in crypto and think that Ethereum will continue to be a top provider of network services, then it's probably the better buy. On the other hand, if you're positioning for an overall rebound in crypto valuations and are seeking investment vehicles that have a diversified exposure to the broader market, Coinbase stock is likely the better fit for your investment priorities.
