Thames Capital Loads Up on Bitfarms With 7 Million Shares

In October, it was easy to be a cryptocurrency bull, with a major rally propelling several digital coins and tokens to new all-time highs. In that environment, many investors were eager not only to get their hands on the cryptos themselves, but also on shares of cryptocurrency companies.

One institutional investor that dove in deep was Thames Capital Management. Its regulatory filings reveal that the firm took new stakes in a clutch of crypto mining companies currently leaning harder into data center operations, at varying degrees. Notable among these was Thames' purchase of more than 7 million shares of Bitfarms (NASDAQ: BITF). Let's shine a light on that investment.

Coming out of the mines

Bitfarms wasn't the only crypto miner-turned data-center power Thames bought during the quarter.

Image source: Getty Images.

A comparison of the investment manager's two latest quarterly 13F forms reveals that it also initiated new positions in Bitfarm peers Cipher Mining, Bitmine Immersion Technologies, Iren, Hut 8, and Riot Platforms.

As if that weren't enough of a commitment to this rather specialized sector, Thames also increased its existing stake in Terawulf, adding 314,402 shares of the company for a new total of almost 1.45 million.

All told, as of the end of the third quarter, the stakes in those seven companies (Bitfarms included) had a market value of almost $128 million. That comprised more than 18% of Thames' equity portfolio at that time.

And that doesn't count the two positions it held in crypto stocks that aren't miners. The first was a 170,358-share holding of Galaxy Digital (note: this company is also increasing its involvement in the data center segment). No. 2 was Volatility Shares Trust-2x Ether ETF, which, as it says on the label, is an Ethereum-focused exchange-traded fund.

Sussing out a strategy

Like many privately held, specialized financial enterprises, Thames tends to keep its cards close to the vest. Neither the firm nor any of its officials has stated the reasons for the crypto miner/data-center operator buy-in.

We can, however, infer a strategy based on the action. Thames didn't snap up shares of every stock in that niche, but the seven selected are among the more prominent and promising. If I had to hazard a guess, I'd imagine the concept is that at least one or two of those companies will surge ahead of the others in the data center sphere.

Thames is surely hoping for the ideal situation, betting that powerful demand for data centers carries many individual companies with it. That's not far-fetched. After all, the U.S. Department of Energy is forecasting electricity use by data centers will surge in the coming years -- thanks mostly to resource-hungry artificial intelligence (AI) technology -- from the 176 terawatt hours of 2023 to 325 to 580 terawatt hours by 2028.

Two caveats to bear in mind

Given that, the crypto miner-turning-data-center sector is a fertile one for investment. There are two significant issues with that, I believe.

First, Thames is hardly the only big or small investor to realize this; so far this year, all of its seven holdings in the niche have outperformed the S&P 500 index by a country mile (the champ, if you're curious, is the 352% gain of Iren). While all of these stocks are down at least a bit from their peaks, they're hardly undiscovered or ignored. So their upside might be limited despite their high potential.

Second, it's still relatively early days in the great AI gold rush. The seven companies all aim to expand their data-center capacity (again, to varying extents), yet it's too soon to determine who's doing this more effectively and who will carve out the greatest market share.

That might explain Thames' clutch of purchases. For individual investors without access to substantial capital, however, this is a high-risk strategy that may not be viable.

So let's drill down to Bitfarms. What distinguishes the company from the other six Thames investments is that it's aiming to fully exit the crypto mining business (by the end of 2027, at the longest) in favor of data centers and high-performance computing (HPC). Out of that group, then, it's basically the No. 1 play on the pivot away from mining.

As crypto prices have been quite the see-saw lately, that should help mitigate some of the volatility for Bitfarms. The fact is, as of its most recently reported quarter, the activity is responsible for the bulk (87%) of the company's revenue, and it has yet to prove it can be a strong competitor in either next-generation data centers or HPC.

To me, that makes Bitfarms stock too risky to buy right now. I think it's better to wait a bit to get a sense of how it and its peers perform with the pivot. Some will succeed more than others; perhaps Bitfarms will be among the winners.

Eric Volkman has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.