Franklin Templeton has announced the filing of two Bitcoin dividend reinvestment ETFs for listing on Nasdaq, edging the $1.8 trillion asset management firm closer to launching funds that will automatically convert stock dividends into Bitcoin investments.
Summary
- The asset manager has submitted registration for two Bitcoin DRIP ETFs under the proposed tickers FBEQ and FIBT, though a specific launch date has yet to be provided.
- Each fund will allocate 95% to U.S. equities and 5% to Bitcoin, using the dividends from the stocks to gradually increase Bitcoin exposure.
- The Bitcoin exposure will have a limit of 20%, and during quarterly rebalancing, any allocation surpassing 5% will be adjusted back to 4.5%.
- Both ETFs carry an annual management fee of 0.09%, pulling their stock assets from distinct large-cap and innovation-focused indexes.
An October 22 filing with the SEC announced that the Franklin US Equity Bitcoin DRIP Index ETF and the Franklin US Innovation Bitcoin DRIP Index ETF have successfully completed their registration process under Section 12(b) of the Securities Exchange Act of 1934.
The funds aim to trade under the tickers FBEQ and FIBT, although the exact start date for trading remains unspecified.
The ETFs will primarily invest in U.S. stocks, utilizing the dividends obtained from these stocks to increase Bitcoin exposure via exchange-traded funds and other eligible avenues.
Franklin Templeton initially proposed these products in June, filing plans for two ETFs designed to reinvest stock dividends into Bitcoin. The company has since made several amendments to its registration documents before this latest filing.
Operational Mechanics of Franklin Templeton’s Bitcoin DRIP ETFs
The two funds will track separate indexes crafted by VettaFi, with both initially dedicating 95% of their portfolios to U.S. equities and 5% to Bitcoin-related assets.
The Franklin US Equity Bitcoin DRIP Index ETF will adhere to the VettaFi US Large-Cap 500 Bitcoin DRIP Index, selecting stocks from a group of 500 major publicly-traded U.S. firms.
Conversely, the Franklin US Innovation Bitcoin DRIP Index ETF will focus exclusively on 100 large U.S. firms chosen from an innovation-driven Nasdaq stock pool.
Though the equity holdings differ, both funds will implement the same reinvestment strategy for dividends.
Regular and special dividends paid by the underlying stocks will be redirected toward Bitcoin investments on the business day following the relevant ex-dividend date.
This strategy will enable the Bitcoin allocation to expand as dividends are issued, with the resultant exposure maintained through eligible Bitcoin investment vehicles.
Investors will retain shares in the ETFs rather than receiving Bitcoin directly. The value of those shares will be contingent upon the performance of the underlying stocks and Bitcoin-associated assets.
Per the proposed terms, both ETFs will impose an annual management fee of 0.09%.
Limitations on Bitcoin Exposure
Franklin Templeton has established specific limits to govern the degree of Bitcoin exposure the funds can accumulate.
During quarterly rebalancing, if Bitcoin allocation exceeds 5%, it will be reduced to 4.5%, redistributing the remaining portfolio weight to equities.
A separate condition will be triggered if Bitcoin exposure surpasses 20% between scheduled reviews, leading to a reduction to 4.5% at the end of the second business day following the breach.
The indexes will reference the Kaiko Bitcoin New York Reference Rate at 4 p.m. Eastern Time to ascertain Bitcoin valuations.
Franklin Templeton has acknowledged various risks that could impact fund performance, including cryptocurrency volatility, transaction costs, custody risks, and potential regulatory changes.
Expansion of Franklin Templeton’s Crypto Portfolio
The recent ETF registrations follow several key advancements in Franklin Templeton’s ventures into digital assets, which include efforts to offer tokenized investment products through traditional funds and cryptocurrency trading platforms.
In August, the asset manager gained SEC staff approval that permits its registered mutual funds and ETFs to invest in the Franklin OnChain U.S. Government Money Fund, known as BENJI, through a proposed custody setup.
As reported earlier by crypto.news, this no-action relief addressed custody requirements stated in the Investment Company Act of 1940, with Franklin Templeton maintaining control over blockchain wallets and private keys for the participating funds.
The firm later partnered with Bybit in September to enable qualified institutional clients to use BENJI fund shares as off-exchange collateral for trading credit lines with USDT and USDC.
Franklin Templeton’s CEO Jenny Johnson further discussed the company’s approach to tokenization at TOKEN2049 Singapore, where she criticized rival systems that create digital duplicates of traditional securities without utilizing blockchain for primary recordkeeping.
Previously, the asset manager had integrated BENJI with MoonPay Trade in June, allowing institutional clients to swap supported stablecoins for tokenized money market fund exposure.
Franklin Templeton also operates the Franklin Bitcoin ETF, trading under the ticker EZBC, which grants investors direct exposure to Bitcoin.
As of the October 22 market data, EZBC had secured approximately $335 million in cumulative net inflows, with $7.3 million reported during Wednesday’s trading session.
On October 23, Bitcoin was trading below $81,500, with a reported 24-hour trading volume that had decreased by 33% following an options expiry.