10-Q: Franklin Crypto Index ETF Reports Strong Q2 Growth

Franklin Crypto Index ETF (EZPZ) reported significant net asset and NAV per share increases for Q2 2025, driven by digital asset appreciation.

Summary

• Net assets increased to $4,066,210 as of June 30, 2025, from $2,513,378 at the commencement of operations on February 20, 2025.
• Net asset value (NAV) per share rose to $27.11 by June 30, 2025, from $20.61 at March 31, 2025, and $25.13 at the start of operations.
• The Fund achieved a total return at NAV of 31.54% for the three months ended June 30, 2025, and 7.88% since its inception on February 20, 2025.
• Net realized and change in unrealized appreciation on digital asset investments totaled $974,203 for the quarter and $569,094 since inception.
• The increase in NAV per share for Q2 2025 was directly linked to a 30.86% increase in Bitcoin price (from $82,956 to $108,560) and a 36.27% increase in Ether price (from $1,834.80 to $2,500.31).
• The Sponsor has waived the entire Sponsor's Fee on the first $10.0 billion of the Fund's assets from February 20, 2025, to August 29, 2025, resulting in $0 net expenses for the reported periods.
• As of June 30, 2025, the Fund held 33.2484 Bitcoin valued at $3,609,446 and 182.6830 Ether valued at $456,764.

Sentiment

Score: 8

Explanation: The sentiment is positive due to strong financial performance driven by digital asset appreciation, a waived sponsor fee, and a favorable regulatory development (in-kind creations/redemptions approval) that could enhance future efficiency. The inherent volatility of digital assets remains a significant, but disclosed, risk.

Positives

• Significant appreciation in net assets and NAV per share, with a 31.54% total return at NAV for the quarter ended June 30, 2025.
• The Sponsor's fee waiver on the first $10.0 billion of assets until August 29, 2025, effectively eliminates ordinary recurring expenses for shareholders during this period.
• SEC approval for in-kind creations and redemptions on July 29, 2025, is expected to offer potential cost and operational efficiencies for the Fund once implemented.
• The Fund successfully tracked its underlying index, benefiting from strong market performance in Bitcoin and Ether during the quarter.

Negatives

• Ether experienced a 9.15% price depreciation from February 20, 2025, to June 30, 2025, partially offsetting Bitcoin's gains over the same period.
• The Fund is subject to concentration risk as it holds only digital assets, making its value highly susceptible to fluctuations in their prices.

Risks

• Concentration risk due to holding only Digital Assets, making the Fund's value highly sensitive to price fluctuations of Bitcoin and Ether.
• Extreme volatility in the trading prices of Digital Assets, which could lead to substantial, sustained, or rapid declines in Share value.
• Factors adversely impacting Digital Asset value include changes in global supply/demand, market sentiment, unregulated or manipulable trading platforms, adoption rates, and network forks.
• The Fund is a passive investment vehicle and does not actively manage its holdings to mitigate price declines.
• Potential for extraordinary or non-routine expenses not assumed by the Sponsor, which would require the Fund to sell Digital Assets to cover, decreasing the amount of Digital Assets per Share.

Future Outlook

The Trust is currently evaluating the implications of the SEC's approval for in-kind creations and redemptions, which is anticipated to offer potential cost and operational efficiencies for the Fund. No material impact to the Fund's financial position is expected from this development as of the report date. The Sponsor may decide to waive all or a portion of its fees in the future, with shareholders to be notified via prospectus supplement or the Fund's website. The Fund does not intend to update forward-looking statements unless required by federal securities laws.

Management Comments

• 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 managements estimates, expectations, beliefs, or projections will be achieved or accomplished.

Industry Context

The Franklin Crypto Index ETF's performance is directly tied to the highly volatile digital asset market, specifically Bitcoin and Ether. The significant appreciation in Q2 2025 reflects a broader positive trend in the cryptocurrency market during that period. The SEC's approval of in-kind creations and redemptions for the Fund aligns with a growing regulatory acceptance and maturation of the digital asset ETF space, potentially enhancing market efficiency and reducing tracking error, which is a key development for the industry.

Comparison to Industry Standards

• The Fund's investment objective is to closely correspond to the performance of the CF Institutional Digital Asset Index US Settlement Price, which includes Bitcoin (88.647%) and Ether (11.353%) as of June 30, 2025. This passive indexing approach is standard for many ETFs aiming to track specific market indices.
• The Sponsor's fee of 0.19% (currently waived) is competitive within the digital asset ETF market, often lower than actively managed funds or some other passively managed crypto products.
• The recent SEC approval for in-kind creations and redemptions, while not yet implemented, is a significant development that could bring the Fund's operational efficiency closer to established commodity ETFs, potentially reducing premium/discount volatility compared to cash-only models.

Corporate Governance

Legal Proceedings

• As of August 13, 2025, the Trust and the Fund are not subject to any material legal proceedings, nor are any material legal proceedings threatened against them.

Related Party Transactions

• Franklin Holdings, LLC is the Sponsor of the Trust and the Fund.
• Franklin Distributors, LLC serves as the Marketing Agent and is an affiliate of the Sponsor.
• Franklin Resources, Inc. (FRI), the ultimate parent company of the Sponsor and Marketing Agent, is considered a related party and acted as the Seed Capital Investor.
• As of June 30, 2025, 20,000 shares of the Fund were held by a related party.
• The Sponsor has waived its entire fee on the first $10.0 billion of the Fund's assets from February 20, 2025, to August 29, 2025.
• Organizational and offering costs of the Trust and Fund were borne by the Sponsor and will not be reimbursed by the Fund.
• The Seed Capital Investor paid transaction and other costs incurred in connection with the conversion of cash proceeds to Bitcoin and Ether for the Seed Creation Units.

Stakeholder Impact

• Shareholders: Benefited from significant appreciation in NAV per share and total return, coupled with a waived Sponsor's fee, leading to higher net returns. Future in-kind creation/redemption could improve efficiency.
• Sponsor (Franklin Holdings, LLC): Bears organizational and offering costs and waives fees, demonstrating commitment to the Fund's growth, but also benefits from the Fund's overall success and management fees once the waiver expires.
• Authorized Participants: Currently engage in cash-only creation/redemption, but the upcoming in-kind option could provide greater flexibility and efficiency.
• Digital Asset Custodian (Coinbase Custody Trust Company, LLC) and Prime Broker (Coinbase Inc.): Continue to provide essential services for safekeeping and trading digital assets, benefiting from the Fund's operations.

Next Steps

• Evaluate the implications of the SEC-approved amendment for in-kind creations and redemptions.
• Implement in-kind creations and redemptions with Authorized Participants, if deemed beneficial.
• Continue to track the CF Institutional Digital Asset Index US Settlement Price.
• Notify shareholders via prospectus supplement or website if the Sponsor decides to waive fees in the future.

Key Dates

Recommendation

The Franklin Crypto Index ETF has demonstrated strong performance in Q2 2025, driven by significant appreciation in its underlying digital assets, Bitcoin and Ether. The Sponsor's fee waiver further enhances shareholder returns by eliminating ordinary expenses for the current period. The recent SEC approval for in-kind creations and redemptions is a positive development, potentially improving the Fund's operational efficiency and market pricing. However, as a passive index fund, its performance remains directly tied to the highly volatile cryptocurrency market, which presents inherent risks. For a seasoned investor seeking diversified exposure to major digital assets, the Fund effectively meets its objective. Given the strong recent performance and positive operational developments, a 'hold' recommendation is appropriate for investors already exposed to the asset class, while those seeking new exposure might consider a 'buy' with a clear understanding of the associated volatility.

Keywords

Franklin Crypto Index ETF, EZPZ, Bitcoin, Ether, Digital Assets, Cryptocurrency, ETF, SEC Filing, 10-Q, Financial Results, Investment Fund, Crypto Index, Asset Management