Franklin Templeton has filed an application with the United States Securities and Exchange Commission to register two exchange-traded funds that reinvest stock dividends into Bitcoin. The investment management firm, which oversees $1.8 trillion in assets, submitted paperwork for the Franklin US Equity Bitcoin DRIP Index ETF (FBEQ) and the Franklin US Innovation Bitcoin DRIP Index ETF (FIBT).
If approved by the Securities and Exchange Commission (SEC), both funds will trade on the Nasdaq Stock Market (NDAQ). The funds are scheduled to be registered on October 27, although an exact start date for trading has not been announced.
Each fund tracks an equity benchmark maintained by financial index provider VettaFi. The FBEQ fund tracks the VettaFi U.S. Large-Cap 500 Bitcoin DRIP Index, which includes the 500 largest publicly traded American companies. The FIBT fund monitors the VettaFi US Innovation 100 Bitcoin DRIP Index, covering the 100 largest non-financial companies listed on the New York-based Nasdaq exchange.
Dividend reinvestment into Bitcoin
The abbreviation DRIP stands for Dividend Reinvestment Plan. In a conventional dividend reinvestment plan, cash payouts distributed by a corporation are automatically used to buy additional shares of that same company. Franklin Templeton adapts this mechanism into a hybrid structure that allocates 95% of each fund's assets to company stocks and 5% to Bitcoin.
Under the terms of the two funds, all regular and special dividends paid by the constituent companies will be directed toward buying Bitcoin. Those purchases will take place at market open on the day after the ex-dividend date, the first day shares trade on an exchange without the right to receive declared dividends.
By collecting dividends from major American corporations, each fund will regularly purchase Bitcoin on behalf of shareholders. Investors will not need to open a cryptocurrency exchange account, create a digital wallet, or store the digital asset themselves to gain ongoing exposure.
The filings set strict thresholds on the cryptocurrency allocation. If the Bitcoin share exceeds 5% during a quarterly rebalancing, it will be adjusted down to 4.5%. If the Bitcoin share rises above 20% during the period between quarterly rebalancings, it will still be cut back to 4.5%.
SEC filing delays and Bitcoin ETF outflows
Founded in 1947 in New York and headquartered in San Mateo, California, Franklin Templeton is one of the world's largest asset managers. The firm first applied to create the two dividend-reinvesting funds in June, but the SEC repeatedly postponed the registration date.
Franklin Templeton submitted its latest filing on Friday, October 23. That submission arrived on a day of broader market outflows, as investors withdrew $635.4 million from spot Bitcoin exchange-traded funds on October 23.
The company also manages another Bitcoin-linked fund, the Franklin Bitcoin ETF (EZBC). According to market data provider SoSoValue, total funds invested in the Franklin Bitcoin ETF stood at $467 million on October 23.
Tokenized funds and blockchain strategy
Alongside its United States filings, Franklin Templeton has expanded its blockchain offerings in Europe. Last year, the firm launched Europe's first tokenized UCITS SICAV securities fund based on the Stellar blockchain. In the European Union, UCITS is the primary regulatory framework for retail investment funds and SICAV is an open-ended collective investment structure, while Stellar is an open-source blockchain network for asset tokenization.
Even as it launches digital products, the firm's leadership has noted caution across traditional finance. In June, Franklin Templeton Chief Executive Officer Jenny Johnson said that major financial companies are in no hurry to move to public blockchains in order to preserve their fee income. While the two new dividend funds are scheduled for SEC registration on October 27, an exact date for the start of Nasdaq trading remains unannounced.
