Franklin Templeton files ETFs to turn stock dividends into Bitcoin

Franklin Templeton filed registration paperwork with the Securities and Exchange Commission on June 18 to launch two exchange-traded funds that would redirect US stock dividends into Bitcoin exposure while maintaining a primary allocation to equities.

The proposed funds are the Franklin US Equity Bitcoin DRIP Index ETF and the Franklin US Innovation Bitcoin DRIP Index ETF. Both would track VettaFi indexes and operate as passive index funds. Each index would start with about a 95% weighting to equities and a 5% allocation to Bitcoin-related instruments. When constituent companies pay regular or special dividends, those payouts would be reinvested into Bitcoin-linked assets at the market open on the business day after each dividend ex-date.

Each fund would invest at least 80% of net assets in the securities that compose its index and in instruments tied to the index’s Bitcoin allocation. The US Equity Bitcoin DRIP fund would mirror an index of the 500 largest US companies by market capitalization. The Innovation Bitcoin DRIP fund would target the 100 largest non-financial companies listed on the Nasdaq.

The filings set several allocation and concentration limits. At quarterly reviews, any Bitcoin allocation above 5% would be trimmed to 4.5%; if the allocation remains at or below 5%, no adjustment would be made. An emergency cap would require a reduction to 4.5% if Bitcoin exposure rose above 20% between reviews, with the cut required by the close of the second business day after the threshold is breached. On the equity side, individual stocks would be capped at 20%, and the combined weight of holdings above 5% could not exceed 40%.

Franklin outlined multiple ways to obtain Bitcoin exposure. The funds could buy Bitcoin-backed exchange-traded products, including those sponsored by Franklin affiliates, or gain exposure through other funds, futures contracts, options, depositary receipts that represent Bitcoin ownership, or investments held via a wholly owned Cayman Islands subsidiary. Each fund may place up to 25% of assets through the Cayman entity to help certain income or gains qualify under US tax rules; Franklin said it would limit such subsidiary investments to meet diversification tests at quarter-ends.

Franklin Advisory Services LLC would serve as investment manager and Franklin Templeton Institutional LLC as sub-adviser. The listed portfolio managers are Dina Ting, Hailey Harris, Joe Diederich and Basit Amin. The filings do not disclose fund tickers, listing exchanges, fees or expense ratios, and note that securities cannot be sold until the registration statement becomes effective.

The prospectus warns that Bitcoin is a speculative asset with a shorter trading history than traditional securities and that prices can fall sharply due to regulatory changes, loss of confidence, technology failures, network disruptions or competition from other digital assets. The filing also highlights market-structure risks: many digital-asset trading venues operate with lighter oversight than traditional exchanges, which raises the potential for manipulation, fraud, theft and limited investor recourse.

Custody risks are also noted. Digital assets depend on private keys and special security systems that are vulnerable to hacking, malware, operational failures and loss, and bankruptcy treatment for digital assets can be uncertain if a custodian fails. The filing states that spot Bitcoin exchange-traded products are not registered under the Investment Company Act of 1940 and therefore offer different investor protections than registered funds. Derivatives such as futures, options and swaps could introduce leverage, counterparty exposure, tracking error and losses that exceed the initial investment.

Franklin already operates a spot Bitcoin ETF trading under the ticker EZBC, managing roughly $360 million in assets after about $330 million in cumulative net inflows, according to the filing. The DRIP proposals follow a broader trend among asset managers to incorporate Bitcoin into familiar portfolio formats such as income and allocation strategies.

The prospectus warns that future IRS guidance, congressional legislation or changes in tax rules could affect the funds’ tax treatment and that such changes might force a shift in investment approach or require liquidation if the funds could no longer meet regulated investment company requirements.