What could crypto leader Ethereum (CRYPTO:ETH) and consumer staple stalwart Procter & Gamble (NYSE:PG) possibly have in common? On the surface, nothing. But dig deeper and you’ll find they have a surprising number of similarities, despite being polar opposite investments.
And each could be a great buy for 2022 and beyond.
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1. Similar market caps
As of the time of this writing, Ethereum has a market cap of $385.1 billion versus P&G’s $382.1 billion market cap. But just a couple of weeks ago, Ethereum was worth over $500 billion, and it topped $575 billion at its all-time high in September 2021.
For now, though, these assets are viewed by the market as having about the same values, though for completely different reasons. Ethereum’s value derives from what investors hope it can grow to become while P&G’s value comes from what it has built over its rich history, its reputation, and the confidence that it will continue to be a dominant member of its industry.
2. Long-term growth
Ethereum has potential to disrupt traditional finance through a sophisticated and increasingly large blockchain that underpins a lot of the practical applications in the crypto market. Ethereum supports major decentralized finance (DeFi) projects, including scaling solutions like Polygon and smart contract networks like Chainlink.
Ethereum is also the largest decentralized app (dApp) platform. Instead of being owned by an individual entity or company and running on centralized servers, dApps’ back-end code runs on a peer-to-peer network. In theory, dApps should be more secure, have better privacy, foster creativity, and run more smoothly than centralized apps. But in practice, the platform remains fairly congested, and scaling has been a problem. As Ethereum’s network grows, it becomes harder to update and maintain dApps. Going in and modifying code to address issues is difficult to do once the dApp is deployed. What’s more, scaling an app intended for a smaller volume can be challenging and clog up the network.
The Ethereum 2.0 upgrade is meant to help make scaling more secure and faster through a process known as sharding. Sharding is the process of spinning off multiple blockchains from one chain. For Ethereum, the plan is to create 64 new chains that will help speed up transaction time and reduce costs, which should improve dApp performance in the process. An upgrade of this scale has never been attempted before in the industry, so it’s important to view Ethereum 2.0 as both a potentially massive way to grow Ethereum’s influence, but also a risk that could jeopardize the safety and security of the network.
In addition to being the largest DeFi and dApp blockchain by volume (bigger than Bitcoin (CRYPTO: BTC) or Solana), Ethereum is also the largest non-fungible token (NFT) marketplace. In sum, it is the best all-around crypto when it comes to practical use cases and its potential to disrupt industries, whereas Bitcoin is arguably the best store of value and a better inflation hedge than gold.
P&G’s value is much less abstract than Ethereum’s. Its value is the product of decades of revenue, earnings, and free cash flow growth that supports year after year of dividend increases. In fact, the consumer products giant has raised its payouts for 65 consecutive years, making it one of the longest-tenured members on the short list of Dividend Kings.
Overall demand for most of P&G’s product categories stays fairly consistent no matter what the economy is doing, a trait shared among most consumer staple companies. This makes them go-to picks for investors during recessions because in periods when other types of companies are apt to face rather drastic downturns, P&G and its peers are more likely to see only stagnant growth or slight earnings declines.
3. Generating passive income
Backed by cash and a decades-long track record of payout increases, P&G’s dividend offers a reliable way to generate income without having to sell the underlying security. Similarly, many exchanges will pay users interest on their Ethereum. For example, Coinbase pays a 4.5% annual percentage yield (APY) if users choose to “stake” their Ethereum. Staking means that users forego trading privileges until the Ethereum 2.0 upgrade is complete. BlockFi offers a 5% APY for the first 1.5 Ether tokens a user buys and holds on its platform. And Celsius offers a 5.35% interest rate on up to 100 Ether tokens on its platform per user.
Compared to P&G’s 2.2% yield, Ethereum’s interest rate looks a lot more attractive. But investors should bear in mind that crypto exchanges typically reserve the right to change those interest rates at a moment’s notice. What’s more, the contents of interest-generating crypto accounts are not federally insured like the money held in traditional savings accounts at banks or credit unions.
Exchanges are willing to offer much higher interest rates on Ethereum than a traditional U.S. dollar savings account pays because the demand for capital and leverage in the crypto space is so high. Exchanges will happily pay a user a 5% interest rate on Ethereum if it can loan it out for 6% or 7% and pocket the difference. So, while P&G and Ethereum (in most exchanges) both generate forms of passive income, P&G’s dividend is a much safer bet.
Two unique buys worth considering now
Ethereum and P&G illustrate why value is a complex concept. Two seemingly opposite securities can both be worth almost the exact same even though their investment theses appeal to different people. Investors interested in growth may find Ethereum is one of the best long-term buys out there, given that many of the trends it supports are still in their early innings. Value and income investors may want to buy P&G for its reasonable 28.9 price-to-earnings ratio, record-high earnings and operating cash flow, and ability to keep growing during recessions.
Opening small positions in both Ethereum and P&G is a reasonable choice for those looking to balance their risks, capture upside, and earn income.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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