Franklin Templeton Digital Holdings Trust 10-Q for FY2025 Q1
Franklin Templeton Digital Holdings Trust (EZBC)
About this 10-Q
Franklin Templeton Digital Holdings Trust filed this 10-Q on August 14, 2024, covering the quarter ended June 30, 2024 (FY2025 Q1).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $36.29M
Table of Contents
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |||
Non-Accelerated Filer |
☒ | Smaller Reporting Company | ||||
| Emerging Growth Company | ||||||
Table of Contents
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This interim report on Form 10-Q includes statements which relate to future events or future performance. In some cases, you can identify such forward-looking statements by terminology such as “may,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. All statements (other than statements of historical fact) included in this report that address activities, events or developments that may occur in the future, including such matters as changes in commodity prices and market conditions (for bitcoin and the Shares), the Fund’s operations, the Sponsor’s plans and references to the Fund’s future success and other similar matters are forward-looking statements. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed in this report, general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments. All forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, will result in the expected consequences to, or have the expected effects on, the Fund’s operations or the value of the Shares. None of the Trust, the Fund, the Sponsor, or the Trustee or their respective affiliates is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsor’s expectations or predictions.
EMERGING GROWTH COMPANY STATUS
The Trust is an “emerging growth company,” as defined in the JOBS Act. For as long as the Trust is an emerging growth company, the Trust may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in the Fund’s periodic reports and audited financial statements in its prospectus, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on “golden parachute” compensation and exemption from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless otherwise determined by the SEC, any new audit rules adopted by the Public Company Accounting Oversight Board.
Under the JOBS Act, the Trust will remain an emerging growth company until the earliest of:
| • | the last day of the fiscal year during which the Trust has total annual gross revenues of $1.235 billion or more; |
| • | the last day of the fiscal year following the fifth anniversary of the completion of this offering; |
| • | the date on which the Trust has, during the previous three-year period, issued more than $1 billion in non-convertible debt; or |
| • | the date on which the Trust is deemed to be a “large-accelerated filer” (i.e., an issuer that (1) has more than $700 million in outstanding equity held by non-affiliates and (2) has been subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act” for at least 12 calendar months and has filed at least one annual report on Form 10-K.) |
The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act” for complying with new or revised accounting standards. The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act” for complying with new or revised accounting standards.
Table of Contents
FRANKLIN BITCOIN ETF
FRANKLIN TEMPLETON DIGITAL HOLDINGS TRUST
TABLE OF CONTENTS
Table of Contents
Item 1. |
Unaudited Financial Statements of the Trust and the Fund |
Page |
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June 30, 2024 |
March 31, 2024 |
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(Unaudited) |
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Assets: |
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Investment in bitcoin, at fair value (a) |
$ | $ | ||||||
Total assets |
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Liabilities: |
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Net Sponsor’s fee payable |
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Total liabilities |
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Net assets |
$ | $ | ||||||
Shares issued and outstanding (b) |
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Net asset value per Share |
$ | $ | ||||||
| (a) | Cost of investment in bitcoin: $ |
| (b) |
Quantity of bitcoin |
Cost |
Fair Value |
% of Net Assets |
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| Investment in bitcoin |
$ | $ | % | |||||||||||||
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| Total investments |
$ | $ | % | |||||||||||||
| Liabilities in excess of other assets |
( |
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| Net assets |
$ | % | ||||||||||||||
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Quantity of bitcoin |
Cost |
Fair Value |
% of Net Assets |
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| Investment in bitcoin |
$ | $ | % | |||||||||||||
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| Total investments |
$ | $ | % | |||||||||||||
| Liabilities in excess of other assets |
( |
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| Net assets |
$ | % | ||||||||||||||
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For the Three Months Ended June 30, 2024* |
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Expenses: |
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Sponsor’s fee |
$ | |||
Total expenses |
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Less waiver and reimbursement |
( |
) | ||
Net investment loss |
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Net realized and change in unrealized gain (loss) on investment in bitcoin |
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Net realized gain on investment in bitcoin |
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Net change in unrealized appreciation (depreciation) on investment in bitcoin |
( |
) | ||
Net realized and change in unrealized appreciation (depreciation) on investment in bitcoin |
( |
) | ||
Net increase (decrease) in net assets resulting from operations |
( |
) | ||
Net increase (decrease) in net assets per Share (a) |
$ | ( |
) (b) | |
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
(a) |
Net increase (decrease) in net assets per Share based on average shares outstanding during the period. |
(b) |
The amount shown for a share outstanding may not agree with the change in the aggregate gains and losses on investment for the period because of the timing of transactions in the Fund’s shares in relation to fluctuating market values for the Fund’s underlying investment. |
For the Three Months Ended June 30, 2024* |
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| Cash Flows from Operating Activities |
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| Net increase (decrease) in net assets resulting from operations |
$ | ( |
) | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: |
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| Purchases of bitcoin |
( |
) | ||
| Sales of bitcoin |
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| Net realized (gain) loss on investment in bitcoin |
( |
) | ||
| Net change in unrealized (appreciation) depreciation on investment in bitcoin |
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| Change in operating assets and liabilities: |
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| Sponsor’s fees payable |
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| Net cash provided by ( used in) operating activities |
$ | ( |
) | |
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| Cash Flows from Financing Activities |
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| Proceeds from issuance of Shares |
$ | |||
| Payments on Shares redeemed |
( |
) | ||
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| Net cash provided by (used in) financing activities |
$ | |||
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| Cash |
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| Net increase in cash |
$ | |||
| Cash, beginning of period |
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| Cash, end of period |
$ | |||
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* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
For the Three Months Ended June 30, 2024* |
||||
| Net assets, beginning of period |
$ | |||
| Net investment loss |
||||
| Net realized gain (loss) on investment in bitcoin |
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| Net change in unrealized appreciation (depreciation) on investment in bitcoin |
( |
) | ||
| |
|
|||
| Net increase (decrease) in net assets resulting from operations |
( |
) | ||
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| Increase (decrease) in net assets from capital share transactions: |
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| Contributions for Shares issued |
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| Distributions for Shares redeemed |
( |
) | ||
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| Net increase in net assets resulting from capital share transactions |
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| Net assets, end of period |
$ | |||
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* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
Shares |
Amount^ |
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| Balance at April 1, 2024 |
$ | |||||||
| Creation of Shares |
||||||||
| Redemption of Shares |
( |
) | ( |
) | ||||
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| Balance at June 30, 2024 |
$ | |||||||
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* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
^ |
Dollar amount of balance represents the cumulative fair value of creation of shares less the redemption of shares, at the time of the specific creation or redemption. |
Quantity in bitcoin |
Amount in US$ |
|||||||
| Balance at April 1, 2024 |
$ | |||||||
| Bitcoin received for the creation of Shares |
||||||||
| Bitcoin distributed for the redemption of Shares |
( |
) | ( |
) | ||||
| Principal on bitcoin sales to pay expenses |
||||||||
| Net realized gain (loss) from bitcoin sold for the redemption of shares |
— | |||||||
| Net change in unrealized appreciation (depreciation) on investment in bitcoin |
— | ( |
) | |||||
| |
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|
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| Balance at June 30, 2024 |
$ | |||||||
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* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
For the Three Months Ended June 30, 2024* |
||||
| Net asset value per Share, beginning of period |
$ | |||
| |
|
|||
| Net investment loss (a) |
||||
| Net realized and unrealized gain (loss) on investment in bitcoin |
( |
) | ||
| |
|
|||
| Net change in net assets from operations |
( |
) (b) | ||
| |
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| Net asset value per Share, end of period |
$ | |||
| |
|
|||
For the Three Months Ended June 30, 2024* |
||||
| Total return, at net asset value (c)(d) |
( |
)% | ||
| Ratio to average net assets (e) |
||||
| Net investment loss |
% | |||
| Gross expenses |
% | |||
| Net expenses |
% | |||
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affiliate of the Sponsor (the “Seed Capital Investor”) purchased |
(a) |
Calculated using average Shares outstanding. |
(b) |
The amount shown for a share outstanding may not agree with the change in the aggregate gains and losses on investment for the period because of the timing of transactions in the Fund’s shares in relation to fluctuating market values for the Fund’s underlying investment. |
( c ) |
Percentage is not annualized. |
( d ) |
Total Return at NAV is calculated assuming an initial investment made at the NAV at the beginning of the period, and redemption of Shares at NAV on the last day of the period. Total Return at NAV as shown above includes adjustments in accordance with U.S. GAAP. |
( e ) |
Annualized. |
June 30, 2024 |
March 31, 2024 |
|||||||
(Unaudited) |
||||||||
| Assets: |
||||||||
| Investment in bitcoin, at fair value (a) |
$ | $ | ||||||
| |
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|
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| Total assets |
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| Liabilities: |
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| Net Sponsor’s fee payable |
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| Total liabilities |
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| Net assets |
$ | $ | ||||||
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| Shares issued and outstanding (b) |
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| Net asset value per Share |
$ | $ | ||||||
| (a) | Cost of investment in bitcoin: $ |
| (b) | |
| June 30, 2024 (Unaudited) |
||||||||||||||||
Quantity of bitcoin |
Cost |
Fair Value |
% of Net Assets |
|||||||||||||
| Investment in bitcoin |
$ | $ | % | |||||||||||||
| |
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|
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| Total investments |
$ | $ | % | |||||||||||||
| Liabilities in excess of other assets |
( |
) | ( |
)% | ||||||||||||
| |
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|
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| Net assets |
$ | % | ||||||||||||||
| |
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|
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| March 31, 2024 |
||||||||||||||||
Quantity of bitcoin |
Cost |
Fair Value |
% of Net Assets |
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| Investment in bitcoin |
$ | $ | % | |||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total investments |
$ | $ | % | |||||||||||||
| Liabilities in excess of other assets |
( |
) | ( |
)% | ||||||||||||
| |
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|
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| Net assets |
$ | % | ||||||||||||||
| |
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|
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For the Three Months Ended June 30, 2024* |
||||
| Expenses: |
||||
| Sponsor’s fee |
$ | |||
| |
|
|||
| Total expenses |
||||
| |
|
|||
| Less waiver and reimbursement |
( |
) | ||
| |
|
|||
| Net investment loss |
||||
| |
|
|||
| Net realized and change in unrealized gain (loss) on investment in bitcoin |
||||
| Net realized gain on investment in bitcoin |
||||
| Net change in unrealized appreciation (depreciation) on investment in bitcoin |
( |
) | ||
| |
|
|||
| Net realized and change in unrealized appreciation (depreciation) on investment in bitcoin |
( |
) | ||
| |
|
|||
| Net increase (decrease) in net assets resulting from operations |
( |
) | ||
| |
|
|||
| Net increase (decrease) in net assets per Share (a) |
$ | ( |
) (b) | |
| |
|
|||
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
(a) |
Net increase (decrease) in net assets per Share based on average shares outstanding during the period. |
(b) |
The amount shown for a share outstanding may not agree with the change in the aggregate gains and losses on investment for the period because of the timing of transactions in the Fund’s shares in relation to fluctuating market values for the Fund’s underlying investment. |
For the Three Months Ended June 30, 2024* |
||||
| Cash Flows from Operating Activities |
||||
| Net increase (decrease) in net assets resulting from operations |
$ | ( |
) | |
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: |
||||
| Purchases of bitcoin |
( |
) | ||
| Sales of bitcoin |
||||
| Net realized (gain) loss on investment in bitcoin |
( |
) | ||
| Net change in unrealized (appreciation) depreciation on investment in bitcoin |
||||
| Change in operating assets and liabilities: |
||||
| Sponsor’s fees payable |
||||
| |
|
|||
| Net cash provided by (used in) operating activities |
$ | ( |
) | |
| |
|
|||
| Cash Flows from Financing Activities |
||||
| Proceeds from issuance of Shares |
$ | |||
| Payments on Shares redeemed |
( |
) | ||
| |
|
|||
| Net cash provided by (used in) financing activities |
$ | |||
| |
|
|||
| Cash |
||||
| Net increase in cash |
$ | |||
| Cash, beginning of period |
||||
| |
|
|||
| Cash, end of period |
$ | |||
| |
|
|||
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
For the Three Months Ended June 30, 2024* |
||||
Net assets, beginning of period |
$ | |||
Net investment loss |
||||
Net realized gain (loss) on investment in bitcoin |
||||
Net change in unrealized appreciation (depreciation) on investment in bitcoin |
( |
) | ||
Net increase (decrease) in net assets resulting from operations |
( |
) | ||
Increase (decrease) in net assets from capital share transactions: |
||||
Contributions for Shares issued |
||||
Distributions for Shares redeemed |
( |
) | ||
Net increase in net assets resulting from capital share transactions |
||||
Net assets, end of period |
$ | |||
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
Shares |
Amount^ |
|||||||
| Balance at April 1, 2024 |
$ | |||||||
| Creation of Shares |
||||||||
| Redemption of Shares |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Balance at June 30, 2024 |
$ | |||||||
| |
|
|
|
|||||
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
^ |
Dollar amount of balance represents the cumulative fair value of creation of shares less the redemption of shares, at the time of the specific creation or redemption. |
Quantity in bitcoin |
Amount in US$ |
|||||||
| Balance at April 1, 2024 |
$ | |||||||
| Bitcoin received for the creation of Shares |
||||||||
| Bitcoin distributed for the redemption of Shares |
( |
) | ( |
) | ||||
| Principal on bitcoin sales to pay expenses |
||||||||
| Net realized gain (loss) from bitcoin sold for the redemption of shares |
— | |||||||
| Net change in unrealized appreciation (depreciation) on investment in bitcoin |
— | ( |
) | |||||
| |
|
|
|
|||||
| Balance at June 30, 2024 |
$ | |||||||
| |
|
|
|
|||||
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. |
For the Three Months Ended June 30, 2024* |
||||
Net asset value per Share, beginning of period |
$ | |||
Net investment loss (a) |
||||
Net realized and unrealized gain (loss) on investment in bitcoin |
( |
) | ||
Net change in net assets from operations |
( |
) (b) | ||
Net asset value per Share, end of period |
$ | |||
Total return, at net asset value (c)(d) |
( |
)% | ||
Ratio to average net assets (e) |
||||
Net investment loss |
% | |||
Gross expenses |
% | |||
Net expenses |
% | |||
* |
No comparative period presented as the Fund’s operations commenced on January 11, 2024. On December 15, 2023, prior to the commencement of the Fund’s operations, Franklin Resources, Inc., an affiliate of the Sponsor (the “Seed Capital Investor”) purchased per-Share price equal to $ |
| (a) | Calculated using average Shares outstanding. |
| (b) | The amount shown for a share outstanding may not agree with the change in the aggregate gains and losses on investment for the period because of the timing of transactions in the Fund’s shares in relation to fluctuating market values for the Fund’s underlying investment. |
| ( c ) |
Percentage is not annualized. |
| ( d ) |
Total Return at NAV is calculated assuming an initial investment made at the NAV at the beginning of the period, and redemption of Shares at NAV on the last day of the period. Total Return at NAV as shown above includes adjustments in accordance with U.S. GAAP. |
| ( e ) |
Annualized. |
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the financial statements and notes included in Item 1 of Part I of this Form 10-Q. This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements involve risks and uncertainties. All statements (other than statements of historical fact) included in this Form 10-Q that address activities, events or developments that may occur in the future, including such matters as future bitcoin prices, bitcoin sales, costs, objectives, changes in commodity prices and market conditions (for bitcoin and the shares), the Fund’s operations, the Sponsor’s plans and references to the Fund’s future success and other similar matters are forward-looking statements. Words such as “could,” “would,” “may,” “expect,” “intend,” “estimate,” “predict,” and variations on such words or negatives thereof, and similar expressions that reflect our current views with respect to future events and Fund performance, are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties that are difficult to predict and many of which are outside of our control, and actual results could differ materially from those discussed. Forward-looking statements involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed therein. We express our estimates, expectations, beliefs, and projections in good faith and believe them to have a reasonable basis. However, we make no assurances that management’s estimates, expectations, beliefs, or projections will be achieved or accomplished. These forward-looking statements are based on assumptions about many important factors that could cause actual results to differ materially from those in the forward-looking statements. We do not intend to update any forward-looking statements even if new information becomes available or other events occur in the future, except as required by the federal securities laws.
Organization and Trust Overview
The Franklin Templeton Digital Holdings Trust (the “Trust”) was formed as a Delaware statutory trust on September 6, 2023, and is governed by the provisions of an Agreement and Declaration of Trust dated as of January 5, 2024. The Trust is not registered as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and is not a commodity pool for purposes of the Commodity Exchange Act (“CEA”). The Trust currently offers a single series, the Franklin Bitcoin ETF (the “Fund”), which is the sole series of the Trust. The Sponsor of the Trust and the Fund (the “Sponsor”) is Franklin Holdings, LLC. The Sponsor is not subject to regulation by the Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator with respect to the Fund, or a commodity trading advisor with respect to the Fund. The Fund issues shares (the “Shares”), which represent units of fractional undivided beneficial interest in the Fund. The Shares of the Fund are listed on the Cboe BZX Exchange, Inc. (“Cboe BZX Exchange” or the “Exchange”).
On December 15, 2023, the Seed Capital Investor purchased 4,000 Shares at a per-Share price equal to $25.00 (the “Initial Seed Shares”). Delivery of the Initial Seed Shares was made on December 15, 2023. Total proceeds to the Fund from the sale of the Initial Seed Shares were $100,000. On January 8, 2024, the Initial Seed Shares were redeemed for $100,000 and the Seed Capital Investor purchased two creation units in a cash transaction comprised of a total of 100,000 Shares at a per-Share price based on 29.00000000 bitcoins per Creation Unit (or 0.00058 bitcoins per Share), for a total of 58.00000000 bitcoins (the “Seed Creation Units”). The cash proceeds to the Fund from the sale of the Seed Creation Units were used by the Fund to purchase 58.00000000 bitcoins at the price of $44,973.58 per bitcoin on January 8, 2024. The transaction and other costs incurred in connection with the Seed Creation Units were paid by the Seed Capital Investor and not borne by the Fund. Thus, the ultimate total proceeds to the Fund from the sale of the Seed Creation Units were $2,608,467.81 (an amount representing 58.00000000 bitcoins). The Shares were first listed for trading and the Fund commenced operations on January 11, 2024.
The Fund seeks to reflect generally the performance of the price of bitcoin. The Fund seeks to reflect such performance before payment of the Fund’s expenses and liabilities. The Shares are intended to constitute a simple means of making an investment similar to an investment in bitcoin rather than by acquiring, holding, and trading bitcoin directly on a peer-to-peer or other basis or via a digital asset platform. The Fund is a passive investment vehicle and is not a leveraged product. The Sponsor does not actively manage the bitcoin held by the Fund.
The Fund issues Shares only in Creation Units of 50,000 or multiples thereof. Creation Units are issued and redeemed in exchange for cash. Individual Shares will not be redeemed by the Fund but the Shares are listed and traded on the Exchange under the ticker symbol “EZBC.” The Fund issues Shares in Creation Units on a continuous basis at the applicable NAV per Share on the creation order date.
The Fund’s only ordinary recurring expense is expected to be the Sponsor’s fee. In exchange for the Sponsor’s fee, the Sponsor has agreed to assume the ordinary fees and expenses incurred by the Fund, including but not limited to the following: the fees charged by the Administrator, Marketing Agent, the Custodians and the Trustee, Cboe BZX Exchange listing fees, typical maintenance and transaction fees of the DTC, SEC registration fees, printing and mailing costs, tax reporting fees, audit fees, license fees and expenses, and up to $500,000 per annum in ordinary legal fees and expenses. The Sponsor will also pay the costs of the Fund’s organization and the initial offering costs, and may not seek reimbursement of such costs.
25
Table of Contents
The Sponsor’s fee is accrued daily at an annualized rate equal to 0.19% of the net asset value of the Fund and is payable at least quarterly in arrears in U.S. dollars or in-kind or any combination thereof. The Sponsor may, at its sole discretion and from time to time, waive all or a portion of the Sponsor’s fee for stated periods of time. The Sponsor is under no obligation to waive any portion of its fees and any such waiver shall create no obligation to waive any such fees during any period not covered by the waiver. The Fund will sell bitcoin as needed to pay the Sponsor’s fee. The Fund bears transaction costs, including any bitcoin network fees or other similar transaction fees, in connection with any sales of bitcoin necessary to pay the Sponsor’s fee, as well as other Fund expenses (if any) that are not assumed by the Sponsor (expenses assumed by the Sponsor are specified above). Any bitcoin network fees and similar transaction fees incurred in connection with the creation or redemption of Creation Units are borne by the Authorized Participant. For a period from January 12, 2024 to August 2, 2024, the Sponsor agreed to waive a portion of the Sponsor’s Fee so that the Sponsor’s Fee after the fee waiver will be equal to 0.00% of the net asset value of the Fund for the first $10.0 billion of the Fund’s assets. For the period April 1, 2024 to June 30, 2024, the Fund accrued the Sponsor’s Fee of $175,683 less waiver and reimbursement of $175,683, and the net Sponsor’s Fee payable post waiver and reimbursement was $0. In the future, if the Sponsor decides to waive all or a portion of the Sponsor’s Fee, Shareholders will be notified in a prospectus supplement, in the Fund’s periodic reports and/or on the Sponsor’s website for the Fund.
The Fund is an “emerging growth company” as that term is used in the Securities Act of 1933, as amended (the “Securities Act”), and, as such, the Fund may elect to comply with certain reduced public company reporting requirements.
The NAV of the Trust is used by the Trust in its day-to-day operations to measure the net value of the Trust’s assets. The NAV is calculated on each business day and is equal to the aggregate value of the Trust’s assets less its liabilities based on the Index price. In determining the NAV of the Trust on any business day, the Administrator will calculate the price of the bitcoin held by the Trust as of 4:00 PM ET on such day. The Administrator will also calculate the “NAV per Share” of the Trust, which equals the NAV of the Trust divided by the number of outstanding Shares. For purposes of making these calculations, a business day means any day other than a day when the Exchange is closed for regular trading.
The Administrator will rely on the Index as the index price to be used when determining NAV. However, determining the value of the Trust’s bitcoin using the Index is not in accordance with GAAP, and therefore is not used in the Trust’s financial statements. The Trust’s bitcoins are carried, for financial statement purposes, at fair value, as required by GAAP. The Trust determines the fair value of bitcoin based on the price provided by the bitcoin market that the Trust considers its “principal market” as of 4:00 PM, ET on the valuation date. The net asset value of the Trust determined on a GAAP basis is referred to as the “Principal Market NAV” and the net asset value of the Trust per Share determined on a GAAP basis is referred to as the “Principal Market NAV per Share.”
NAV and NAV per Share are not measures calculated in accordance with GAAP and are not intended as substitute for Principal Market and Principal Market NAV per Share, respectively.
Critical Accounting Policy
The Trust’s and the Fund’s financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Fund’s as well as the Trust’s financial position and results of operations. These estimates and assumptions affect the Fund’s as well as the Trust’s application of accounting policies. A description of the valuation of bitcoin, a critical accounting policy that is important to understanding the results of operations and financial position of the Trust and the Fund is presented in the Trust’s Annual Report on Form 10-K in the section entitled “Calculation of Net Asset Value, Valuation of Bitcoin and The CF Benchmark Index.” In addition, please refer to Note 2 to the financial statements included in this report for further discussion of the Trust’s and the Fund’s accounting policies.
Discussion of Operations (Financing Activities)
On December 15, 2023, the Seed Capital Investor purchased 4,000 Shares at a per-Share price equal to $25.00 (the “Initial Seed Shares”). Delivery of the Initial Seed Shares was made on December 15, 2023. Total proceeds to the Fund from the sale of the Initial Seed Shares were $100,000. On January 8, 2024, the Initial Seed Shares were redeemed for $100,000 and the Seed Capital Investor purchased two creation units in a cash transaction comprised of a total of 100,000 Shares at a per-Share price based on 29.00000000 bitcoins per Creation Unit (or 0.00058 bitcoins per Share), for a total of 58.00000000 bitcoins (the “Seed Creation Units”). The cash proceeds to the Fund from the sale of the Seed Creation Units were used by the Fund to purchase 58.00000000 bitcoins at the price of $44,973.58 per bitcoin on January 8, 2024. The transaction and other costs incurred in connection with the Seed Creation Units were paid by the Seed Capital Investor and not borne by the Fund. Thus, the ultimate total proceeds to the Fund from the sale of the Seed Creation Units were $2,608,467.81 (an amount representing 58.00000000 bitcoins). The Shares were first listed for trading and the Fund commenced operations on January 11, 2024.The Fund had no operations prior to the commencement of operations of the Fund on January 11, 2024.
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Results of Operations
At June 30, 2024, the Custodian held 5,886.9982 of bitcoin on behalf of the Fund, with a market value of $373,054,955 (cost: $348,236,796) based on the price of bitcoin (as measured by the Lukka Prime Price) at period end.
For the quarter ended June 30, 2024*
For the quarter ended June 30, 2024, 2,800,000 Shares were issued in exchange for 1,623.9995 of bitcoin and 1,000,000 Shares were redeemed in exchange for (579.9999) of bitcoin. The Fund’s NAV per Share began the period at $40.95 and ended the period at $36.75. The decrease in NAV per Share was due to a lower price of bitcoin of $63,369.30 at period end, which represented a decrease of 10.26% from $70,596.99 at March 31, 2024.
The change in net assets from operations for the quarter ended June 30, 2024 was $(36,290,278), which was due to (i) payment of the Sponsor’s Fee of $(175,683), (ii) Less waiver and reimbursement of $175,683, and (iii) a net change in realized gain (loss) from bitcoin sold for redemptions and unrealized appreciation on investment in bitcoin of $(36,290,278).
| * | No comparative period presented as the Fund commenced operations on January 11, 2024. |
Liquidity and Capital Resources
The Fund is not aware of any trends, demands, commitments, events, or uncertainties that are reasonably likely to result in material changes to its liquidity needs.
The Fund’s only ordinary recurring expense is expected to be the Sponsor’s fee. In exchange for the Sponsor’s fee, the Sponsor has agreed to assume the ordinary fees and expenses incurred by the Fund, including but not limited to the following: the fees charged by the Administrator, Marketing Agent, the Custodians and the Trustee, Cboe BZX Exchange listing fees, typical maintenance and transaction fees of the DTC, SEC registration fees, printing and mailing costs, tax reporting fees, audit fees, license fees and expenses, and up to $500,000 per annum in ordinary legal fees and expenses. The Sponsor will also pay the costs of the Fund’s organization and the initial offering costs, and may not seek reimbursement of such costs.
The Sponsor’s fee is accrued daily at an annualized rate equal to 0.19% of the net asset value of the Fund and is payable at least quarterly in arrears in U.S. dollars or in-kind or any combination thereof. The Sponsor may, at its sole discretion and from time to time, waive all or a portion of the Sponsor’s fee for stated periods of time. The Sponsor is under no obligation to waive any portion of its fees and any such waiver shall create no obligation to waive any such fees during any period not covered by the waiver. The Fund will sell bitcoin as needed to pay the Sponsor’s fee. For a period from January 12, 2024 to August 2, 2024, the Sponsor agreed to waive a portion of the Sponsor’s Fee so that the Sponsor’s Fee after the fee waiver will be equal to 0.00% of the net asset value of the Fund for the first $10.0 billion of the Fund’s assets. For the period April 1, 2024 to June 30, 2024, the Fund accrued the Sponsor’s Fee of $175,683 less waiver and reimbursement of $175,683, the net Sponsor’s Fee payable post waiver and reimbursement is $0. In the future, if the Sponsor decides to waive all or a portion of the Sponsor’s Fee, Shareholders will be notified in a prospectus supplement, in the Fund’s periodic reports and/ or on the Sponsor’s website for the Fund.
The Fund bears transaction costs, including any bitcoin network fees or other similar transaction fees, in connection with any sales of bitcoin necessary to pay the Sponsor’s fee, as well as other Fund expenses (if any) that are not assumed by the Sponsor (expenses assumed by the Sponsor are specified above). Any bitcoin network fees and similar transaction fees incurred in connection with the creation or redemption of Creation Units are borne by the Authorized Participant.
Off-Balance Sheet Arrangements
At June 30, 2024, the Fund as well as the Trust do not have any off-balance sheet arrangements.
Historical Digital Asset Holdings and Bitcoin Prices
Analysis of Movements in the Price of Bitcoin
As movements in the price of bitcoin are expected to directly affect the price of the Fund’s shares, it is important for investors to understand and follow movements in the price of bitcoin. Past movements in the bitcoin price are not indicators of future movements.
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The following chart shows movements in the price of bitcoin based on the CME CF Bitcoin Reference Rate – New York Variant for the Bitcoin – U.S. Dollar trading pair (the “CF Benchmarks Index”) in U.S. dollars per unit over the period from April 1, 2024 to June 30, 2024.
The average, high, low and end-of-period bitcoin prices based on the CF Benchmarks Index for the period are as below:
| Period |
Average | High | Date | Low | Date | End of period | Last business day (1) | |||||||||||||||||||
| April 01, 2024 to June 30, 2024 |
65,609.83 | 71,815.70 | April 08, 2024 | 57,905.95 | May 01, 2024 | 60,330.17 | June 28, 2024 | |||||||||||||||||||
| (1) | The end of period bitcoin price is the CF Benchmarks Index on the last business day of the period |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Fund is a passive investment vehicle. It is not actively managed. The investment objective of the Fund is to seek to reflect generally the performance of the price of bitcoin before payment of the Fund’s expenses. Fluctuations in the price of bitcoin will affect the value of the Fund’s Shares.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The duly authorized officers of the Sponsor, performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, have evaluated the effectiveness of the Trust’s disclosure controls and procedures, and have concluded as of the end of the period covered by this filing on Form 10-Q that the disclosure controls and procedures of the Trust operated effectively at reasonable assurance levels.
The disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized and reported, within the time period specified in the applicable rules and forms, and that such information is accumulated and communicated to the duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, as appropriate, to allow timely decisions regarding required disclosure. It is important to note that no set of controls, no matter how reasonably designed, can detect every error.
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The duly authorized officers of the Sponsor, performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, have evaluated the effectiveness of the Fund disclosure controls and procedures, and have concluded as of the end of the period covered by this filing on Form 10-Q that the disclosure controls and procedures of the Fund operated effectively at reasonable assurance levels.
The disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the Securities Exchange Act of 1934, as amended, on behalf of the Fund, are recorded, processed, summarized and reported, within the time period specified in the applicable rules and forms, and that such information is accumulated and communicated to the duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, as appropriate, to allow timely decisions regarding required disclosure. It is important to note that no set of controls, no matter how reasonably designed, can detect every error.
Internal Control over Financial Reporting
There were no changes in the Trust’s and the Fund’s internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Trust’s and/or the Fund’s internal control over financial reporting.
Each of the Sarbanes-Oxley certifications included as exhibits to this filing apply with respect to both the operations of both the Fund, as the sole series of the Trust, and the Trust as registrant.
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a) |
None. |
b) |
Not applicable. |
c) |
The Trust does not purchase Shares directly from its Shareholders. In connection with its redemption of Creation Units held by Authorized Participants, the Fund redeemed 20 Creation Units (comprising 1,000,000 Shares) during the quarter ended June 30, 2024. The following table summarizes the redemptions by Authorized Participants during the period: |
Period |
Total Shares Redeemed |
Average Price Per Share |
||||||
April 1, 2024 – April 30, 2024 |
— |
$ |
— |
|||||
May 1, 2024 – May 31, 2024 |
400,000 |
33.59 |
||||||
June 1, 2024 – June 30, 2024 |
600,000 |
34.77 |
||||||
| d) | 10b5-1 or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933) for the three-month period ended June 30, 2024. |
Table of Contents
EXHIBIT INDEX
| Exhibit No. |
Description of Exhibit | |
| 31.1(1) | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2(1) | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1(1) | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350) | |
| 32.2(1) | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350) | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |
| (1) | Filed herewith. |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated thereunto duly authorized.
Franklin Holdings, LLC
Sponsor of the Franklin Templeton Digital Holdings Trust (registrant)
| By: | /s/ David Mann* | |
| David Mann | ||
| President and Chief Executive Officer | ||
| (serving in the capacity of principal executive officer) | ||
| By: | /s/ Matthew Hinkle* | |
| Matthew Hinkle | ||
| Chief Financial Officer | ||
| (serving in the capacity of principal financial officer) | ||
| Date: August 14, 2024 | ||
| * | The registrant is a trust and the person is signing in his capacity as an officer of Franklin Holdings, LLC, the Sponsor of the registrant. |
32
Exhibit 31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David Mann, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Franklin Templeton Digital Holdings Trust (the “Trust” or “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ David Mann | |
| David Mann* | ||
| President and Chief Executive Officer | ||
| (serving in the capacity of principal executive officer) |
Date: August 14, 2024
| * | The registrant is a trust and the person is signing in his capacity as an officer of Franklin Holdings, LLC, the Sponsor of the registrant. |
Exhibit 31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Matthew Hinkle, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Franklin Templeton Digital Holdings Trust (the “Trust” or “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| By: | /s/ Matthew Hinkle | |
| Matthew Hinkle* | ||
| Chief Financial Officer | ||
| (serving in the capacity of principal financial officer) |
Date: August 14, 2024
| * | The registrant is a trust and the person is signing in his capacity as an officer of Franklin Holdings, LLC, the Sponsor of the registrant. |
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 (the “Report”) of Franklin Templeton Digital Holdings Trust (the “Trust” or “registrant”) as filed with the Securities and Exchange Commission on the date hereof, I, David Mann, the Principal Executive Officer of the Sponsor of the Registrant, hereby certify, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| By: | /s/ David Mann | |
| David Mann* | ||
| President and Chief Executive Officer | ||
| (serving in the capacity of principal executive officer) |
Date: August 14, 2024
| * | The Registrant is a trust and the person is signing in his capacity as an officer of Franklin Holdings, LLC, the Sponsor of the registrant. |
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 (the “Report”) of Franklin Templeton Digital Holdings Trust (the “Trust” or “registrant”) as filed with the Securities and Exchange Commission on the date hereof, I, Matthew Hinkle, the Principal Financial Officer of the Sponsor of the Registrant, hereby certify, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| By: | /s/ Matthew Hinkle | |
| Matthew Hinkle* | ||
| Chief Financial Officer | ||
| (serving in the capacity of principal financial officer) |
Date: August 14, 2024
| * | The Registrant is a trust and the person is signing in his capacity as an officer of Franklin Holdings, LLC, the Sponsor of the registrant. |