Franklin Templeton files ETFs to reinvest dividends into Bitcoin

Franklin Templeton filed with the U.S. Securities and Exchange Commission on June 18 to launch two exchange-traded funds that would use U.S. stock dividends to buy Bitcoin-related assets. The funds are named the Franklin US Equity Bitcoin DRIP Index ETF and the Franklin US Innovation Bitcoin DRIP Index ETF.

Both ETFs would track indexes built by VettaFi. The US Equity Bitcoin DRIP Index would mirror an index tied to the 500 largest U.S. companies by market capitalization. The US Innovation Bitcoin DRIP Index would follow the 100 largest non-financial companies listed on the Nasdaq. Each index would start with a 95% allocation to equities and a 5% allocation to Bitcoin-related instruments.

Under the proposed structure, when underlying stocks pay regular or special dividends the funds would reinvest those payouts into Bitcoin-related holdings at the market open on the trading day after the dividend ex-date. The filing requires the funds to invest at least 80% of net assets in the securities comprising their indexes and in corresponding Bitcoin instruments.

Portfolio concentration limits are specified. Individual stocks would be capped at 20% of the fund. The combined weight of stocks with more than a 5% allocation could not exceed 40%. At quarterly reviews, if the Bitcoin allocation exceeds 5% it would be trimmed back to 4.5%; no downward adjustment would occur if the allocation is at or below 5%.

The indexes include an emergency cap. If Bitcoin exposure rises above 20% between scheduled reviews, the allocation would be cut to 4.5% by the close of the second business day after that threshold is breached.

Franklin would have several options to obtain Bitcoin exposure. The funds may invest in Bitcoin-backed exchange-traded products, including those sponsored by Franklin affiliates, other investment companies that provide Bitcoin exposure, futures contracts, options, depositary receipts representing Bitcoin interests, or holdings through a wholly owned Cayman Islands subsidiary.

Each fund may invest up to 25% of total assets through the Cayman subsidiary. Franklin says the subsidiary is intended to help income or gains from certain Bitcoin-related investments qualify as “good income” under the U.S. Internal Revenue Code, a factor related to maintaining regulated investment company tax status.

Franklin Advisory Services LLC is named as investment manager and Franklin Templeton Institutional LLC as sub-adviser. The prospectus lists portfolio managers Dina Ting, Hailey Harris, Joe Diederich and Basit Amin. The filing does not disclose tickers, listing exchanges, fees or expense ratios, and the funds’ securities could not be sold until the registration statement becomes effective.

The prospectus outlines risks tied to Bitcoin and the instruments used to gain exposure. It describes Bitcoin as having a shorter price history than traditional asset classes and characterizes the digital-asset market as speculative and prone to sharp declines from regulatory changes, technology failures, shifts in market confidence or competition from other tokens. The filing notes market-structure risks because many crypto trading venues operate with less oversight than securities exchanges and highlights concentration risk from large Bitcoin holders.

Custody risk is described: digital assets rely on private keys and specialized security systems that can be vulnerable to hacking, operational failures or loss. The filing also cautions that spot Bitcoin exchange-traded products are not registered under the Investment Company Act of 1940 and that using futures, options or swaps could introduce leverage, counterparty exposure and tracking error.

Tax treatment is identified as a material risk. The filing warns that future Internal Revenue Service guidance, congressional legislation or changes in tax treatment could affect whether Bitcoin-related income qualifies as the “good income” required for tax-efficient ETF status, and that such changes could force adjustments to the funds’ strategies or, in some cases, liquidation.

The filing is part of broader product development in the U.S. Bitcoin ETF market. Since their 2024 launch, U.S. spot Bitcoin ETFs have gathered roughly $53.4 billion in net inflows and hold about $78.32 billion in assets, although recent weeks have seen about $6 billion in outflows. Franklin already operates a spot Bitcoin fund that trades under the ticker EZBC and manages roughly $360 million in assets, and the DRIP filings reflect an alternative product structure within the Bitcoin ETF landscape.