Franklin Templeton Proposes First Bitcoin and Ethereum Index ETF to SEC, Aiming for Unique Digital Asset Fund

Franklin Templeton has submitted a proposal for a Bitcoin and Ethereum index ETF to the U.S. Securities and Exchange Commission (SEC). If the SEC approves this application, it could allow the company to combine Bitcoin (BTC) and Ethereum (ETH) into one fund.

This filing is significant. It would be the first ETF to hold both BTC and Ether, making it a unique option in the digital currency market. If approved, shares of the Franklin Crypto Index ETF will be issued in blocks of 50,000. Their value will be tied to the net asset value (NAV) of the Bitcoin and Ether that the fund holds. Importantly, the fund will not engage in staking or generating income from its digital assets.

The index aims to provide indirect exposure to Bitcoin and Ethereum. This helps reduce the typical volatility associated with these cryptocurrencies. Instead of holding the assets directly, BTC and ETH will be managed through a proxy, with the fund's assets including Bitcoin, Ethereum, cash, and short-term financial instruments.

The index will have a maturity of less than three months. It will track performance against a benchmark designed to monitor the largest digital assets — the CF Institutional Digital Asset Index — in line with current capital markets.

BNY Mellon will act as the custodian and transfer agent for the fund, overseeing its operations. Coinbase Custody will manage the digital assets.

The SEC's decision to approve or deny the application will depend on anti-fraud measures related to regulated futures markets. The agency typically approves crypto ETFs after confirming strong protections against fraud and manipulation. The proposal highlights existing oversight agreements with regulated futures markets to ensure safe and transparent trading of the underlying assets.

This potential Bitcoin and Ethereum index marks Franklin Templeton's second major step into blockchain technology in just a short time. Recently, the firm launched the Franklin Onchain U.S. Government Money Fund (FOBXX) on the Aptos Layer-1 blockchain.

This tokenization initiative allows institutional investors to access the asset directly through their digital wallets. They can use Franklin Templeton's blockchain-integrated Benji Investments platform and its BENJI token. The fund is also active on Stellar, Polygon, Arbitrum, and Avalanche blockchains.

Moreover, Franklin Templeton is deeply involved in the ETF market. They provide institutional investors access to Bitcoin and Ethereum through their EZBC and EZET ETFs. The firm is also planning to introduce a mutual fund on the Solana blockchain.

These developments highlight the growing interest in decentralized finance (DeFi) among traditional finance (TradFi) players. However, uncertainties around regulatory frameworks might slow down the broader adoption of TradFi-to-DeFi integration.