Franklin Templeton has completed the final regulatory step before launching two exchange-traded funds that will convert stock dividends into Bitcoin.
On October 22, Franklin Templeton filed Form 8-A with the U.S. Securities and Exchange Commission to register shares of the Franklin US Equity Bitcoin DRIP Index ETF and the Franklin US Innovation Bitcoin DRIP Index ETF for trading on Nasdaq. The prospectus filed on the same day indicated an effective date of October 27.
Applications for these two funds were first submitted in June, when neither ticker symbols nor fees had been established. Four months later, the relevant details have been disclosed.
How do funds work?
The stock fund's ticker symbol is FBEQ, tracking the VettaFi US Large-Cap 500 Bitcoin DRIP Index. This index holds the 500 largest U.S. companies by market capitalization, weighted by float-adjusted market capitalization.
As of September 30, the index holds 499 stocks, with market capitalizations ranging from $10.2 billion to $5.5 trillion, and is concentrated in the information technology sector.
At inception, the index allocates 95% to these stocks and 5% to Bitcoin. Every dividend payment, whether regular or special, is reinvested into Bitcoin at the open of the second trading day following the ex-dividend date. With each dividend payout, Bitcoin’s allocation within the portfolio gradually increases.
Traditional dividend reinvestment plans, or DRIPs, use dividends to purchase additional shares of the paying company; Franklin’s version directs this cash toward Bitcoin.
For holders, dividend flows from America’s largest companies will become a continuous stream of Bitcoin purchases, without the need for trading accounts, wallets, or custody decisions.
Bitcoin positions are also capped. During each quarterly rebalance, if the allocation exceeds 5%, it will be reduced to 4.5%. If, between two rebalances, the Bitcoin allocation exceeds 20%, it will be brought back down to 4.5% within two business days, with the proceeds redirected to stocks. The result is a stock fund with a Bitcoin position, not a Bitcoin fund.
This ETF does not hold Bitcoin directly on-chain. It gains exposure through Bitcoin exchange-traded products, including Franklin Templeton’s own spot fund, as well as through Bitcoin futures and options, or depositary receipts, and in some cases, via a Cayman Islands subsidiary.
The expense ratio for FBEQ is 0.09%, with no 12b-1 fees. Franklin Advisory Services manages the fund, and Franklin Templeton Institutional serves as the sub-advisor. The fund managers are Dina Ting, Hailey Harris, Joe Diederich, and Basit Amin.
The Innovation Fund uses the same mechanism to track the VettaFi US Innovation 100 Bitcoin DRIP Index, which selects components from the 100 largest non-financial companies listed on Nasdaq.
A deeper bet on Bitcoin
Franklin Templeton applied for a spot Bitcoin ETF in September 2023 and launched it in January 2024 under the name EZBC. In April, the company acquired 250 Digital and established Franklin Crypto, an institutional digital assets division. Franklin Templeton CEO Jenny Johnson has stated that blockchain poses a greater threat to Wall Street’s fee structure than to its technology itself.
These DRIP funds extend this strategy to investors who may have never purchased Bitcoin on their own. Through FBEQ, a retiree holding a fund similar to the S&P 500 in a brokerage account can gradually accumulate a Bitcoin position over time using the dividends from their existing holdings.
The prospectus warns that investors may incur losses, and fluctuations in Bitcoin's price could affect the fund's net asset value. Whether Franklin Templeton’s target audience will accept this trade-off will become clearer after October 27.