Franklin Templeton Digital Holdings Trust

The Franklin Templeton Digital Holdings Trust operates in the digital asset industry, specifically offering investment exposure to bitcoin through a passively managed exchange-traded product. The industry is characterized by extreme price volatility, with the average annualized one-year trailing volatility of bitcoin over the past ten years remaining elevated at 65% ¹. The digital asset market experienced a significant dislocation in October 2025, including liquidations of up to $20 billion in collateral ². The Trust's sole series, the Franklin Bitcoin ETF, seeks to reflect generally the performance of the price of bitcoin before payment of the Fund's expenses and liabilities.

The Fund faces significant competition from several competitor spot bitcoin exchange-traded products available in the market, as well as from direct investments in bitcoin, bitcoin futures-based products, other digital assets, and other potential financial vehicles. The Sponsor's competitors may have greater financial, technical and human resources than the Sponsor. As of March 31, 2026, there were more than 10,000 alternative digital assets tracked by CoinGecko.com, having a total market capitalization of approximately $2.8 trillion (including the approximately $1.6 trillion market capitalization of bitcoin) ³. The Fund's competitive advantages include a low expense ratio of 0.19% ⁴ and the backing of the Franklin Templeton brand, though the filing notes that the Fund's ability to attract and retain assets could be impaired to the extent competitors have a lower expense ratio.

The Fund generates revenue solely through the Sponsor's fee, which is the Fund's only ordinary recurring expense, accrued daily at an annualized rate of 0.19% (i.e. 0.19%/365 days) of the daily net asset value of the Fund ⁵. The Fund does not have any income and must sell bitcoin to cover the Sponsor's fee and any expenses not assumed by the Sponsor. The Fund issues and redeems Shares only in Creation Units of 50,000 Shares ⁶ or multiples thereof, and only Authorized Participants may purchase or redeem Creation Units. The Fund is a passive investment vehicle and does not utilize leverage, derivatives or similar instruments or transactions.

The Fund's sole product is the Franklin Bitcoin ETF, which holds only bitcoin and cash. The Fund seeks to reflect generally the performance of the price of bitcoin before payment of the Fund's expenses. The Fund's assets consist primarily of bitcoin held by the Bitcoin Custodian (Coinbase Custody Trust Company, LLC) on behalf of the Fund and cash. The Fund does not and will not hold or trade in commodity futures contracts regulated under the Commodity Exchange Act. The Fund will not utilize leverage, derivatives or similar instruments or transactions in seeking to meet its investment objective. The Fund's only ordinary recurring expense is the Sponsor's fee at an annual rate of 0.19% ⁷ of the daily net asset value. Fees recognized for the fiscal year ended March 31, 2026 were $1,028,947 ⁸.

The Fund's investment objective is to reflect generally the performance of the price of bitcoin before payment of the Fund's expenses. The Shares are intended to offer a convenient means of making an investment similar to an investment in bitcoin relative to acquiring, holding and trading bitcoin directly. The Fund is not a proxy for a direct investment in bitcoin. 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 will not utilize leverage, derivatives or similar instruments or transactions in seeking to meet its investment objective.

During the fiscal year ended March 31, 2026, the Fund issued 4,450,000 Shares ⁹ in exchange for 2,576.5193 bitcoin ¹⁰ and redeemed 2,100,000 Shares ¹¹ in exchange for 1,215.3949 bitcoin ¹². The Fund's NAV per Share began the year at $48.05 ¹³ and ended the year at $39.39 ¹⁴. The Fund redeemed 10 Creation Units (comprising 500,000 Shares) during the quarter ended March 31, 2026 ¹⁵. As of March 31, 2026, the Custodian held 6,302.8336 bitcoin ¹⁶ on behalf of the Fund, with a market value of $429,409,784 ¹⁷ (cost: $473,378,477 ¹⁸) based on the Principal Market Price. The Fund had 10,050,000 outstanding Shares as of June 9, 2026 ¹⁹.

For the fiscal year ended March 31, 2026, total expenses were $1,028,947 ²⁰, resulting in a net investment loss of $1,028,947 ²¹. Net realized and change in unrealized loss on investment in bitcoin was approximately $117,499,884 ²², which included a realized gain of $311,028 ²³ on the sale of bitcoin to pay the Sponsor's fee, net realized gain on investment in bitcoin sold for redemptions of $23,333,047 ²⁴ and net change in unrealized depreciation on investment in bitcoin of approximately $141,143,959 ²⁵. Net decrease in net assets resulting from operations was approximately $118,528,831 ²⁶ for the year. Net assets increased to approximately $429,340,099 ²⁷ on March 31, 2026, primarily resulting from net capital share transactions of approximately $137,011,587 ²⁸, partially offset by bitcoin price depreciation.

The Fund's primary growth vector is its low-cost structure, with a Sponsor's fee of 0.19% ²⁹ of daily net asset value, which is intended to attract investors seeking cost-effective bitcoin exposure. The Fund also benefits from the ability to conduct both cash and in-kind creation and redemption transactions, which may enhance its appeal to institutional investors. The filing notes that the Fund has entered into agreements with multiple Bitcoin Trading Counterparties, including JSCT, LLC (Jane Street) and Virtu Financial Singapore Pte., Ltd., to facilitate spot purchase or sale transactions in bitcoin ³⁰.

The Fund's growth is also tied to the broader adoption of bitcoin and digital assets. The filing discusses the potential for increased demand from the establishment of a Strategic Bitcoin Reserve and a United States Digital Asset Stockpile pursuant to an Executive Order signed on March 6, 2025 ³¹. However, the anticipation of a U.S. government-funded strategic cryptocurrency reserve had motivated large-scale purchases of certain digital assets, and the market price of such digital assets decreased significantly as a result of the ultimate content of the Executive Order ³².

The Fund's expense ratio is fixed at 0.19% ³³ of daily net asset value, and the Sponsor has agreed to assume ordinary fees and expenses incurred by the Fund, including up to $500,000 per annum in ordinary legal fees and expenses ³⁴. 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. For a period from April 1, 2024 to August 2, 2024, the Sponsor waived a portion of the Sponsor's fee so that the Sponsor's fee after the fee waiver would be equal to 0.00% of the net asset value of the Fund for the first $10.0 billion of the Fund's assets ³⁵.

The Fund's operational model relies on its service providers, including the Bitcoin Custodian (Coinbase Custody Trust Company, LLC), the Prime Broker (Coinbase Inc.), the Administrator (The Bank of New York Mellon), and the Cash Custodian (The Bank of New York Mellon). The Fund's bitcoin is held in cold storage in the Vault Balance with the Bitcoin Custodian, with a portion temporarily held in the Trading Balance with the Prime Broker for operational purposes. The Fund utilizes Trade Credits from the Trade Credit Lender (Coinbase Credit, Inc.) to facilitate cash creations and redemptions without pre-funding.

The Sponsor's fee is the Fund's only ordinary recurring expense, and the Sponsor has assumed organizational and initial offering costs. The Fund may incur extraordinary or non-routine expenses, such as legal fees and expenses in excess of $500,000 per annum ³⁶, which are not assumed by the Sponsor. The Fund's capital allocation is primarily driven by the need to sell bitcoin to pay the Sponsor's fee and any other expenses not assumed by the Sponsor, which results in a decrease in the amount of bitcoin represented by each Share over time.

The Fund faces significant headwinds from the extreme volatility of bitcoin prices. The filing notes that the average annualized one-year trailing volatility of bitcoin over the past ten years remains elevated at 65% ³⁷, and that the price of bitcoin experienced a 77% drawdown in the 2021-2022 cycle, peaking at $67,734 and bottoming at $15,632 ³⁸. During the fiscal year ended March 31, 2026, bitcoin lost approximately 14% of its value in mid-October 2025 as part of the October 2025 Flash Crash ³⁹.

Regulatory uncertainty is a major constraint. The filing details that digital asset markets in the U.S. exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of bitcoin or the Shares. The SEC has not issued a definitive statement on whether ether is a security, and the treatment of digital assets for U.S. federal, state and local income tax purposes is uncertain. The Fund is an emerging growth company and may take advantage of reduced disclosure requirements, which could make the Shares less attractive to investors.

The Fund's value is directly tied to the price of bitcoin, which has experienced extreme volatility, with an average annualized one-year trailing volatility of 65% ⁴⁰ over the past ten years and a 77% drawdown in the 2021-2022 cycle ⁴¹. The Fund is not actively managed and will not take actions to mitigate volatility impacts. The Fund relies on a single Bitcoin Custodian, Coinbase Custody Trust Company, LLC, and a single Prime Broker, Coinbase Inc., creating concentration risk; the Bitcoin Custodian's liability is limited to the greater of fees paid in the prior 12 months or the value of assets on deposit, but in no event exceeding $100,000,000 per cold storage address ⁴², and the Prime Broker's defense and indemnity obligations are limited to $2,000,000 ⁴³. The Fund's bitcoin held in the Trading Balance with the Prime Broker represents an omnibus claim, not an identifiable claim to specific bitcoin, increasing risk of loss in the event of the Prime Broker's insolvency. The Fund may borrow Trade Credits, and if it fails to repay them on time, the Trade Credit Lender can take control of and liquidate the Fund's assets ⁴⁴. The digital asset markets in the U.S. exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of bitcoin or the Shares.

Management's message emphasizes the Fund's role as a passive, cost-effective vehicle for gaining bitcoin exposure through the securities markets, removing the complexities of direct ownership. The Sponsor highlights the Fund's low expense ratio of 0.19% ⁴⁵ and the backing of the Franklin Templeton brand. Key strategic priorities include maintaining the Fund's passive investment strategy, ensuring robust operational infrastructure through key service providers like Coinbase Custody and BNY Mellon, and navigating the evolving regulatory landscape for digital assets. The filing notes that the Sponsor may terminate the Trust or the Fund in its sole discretion, and that the Sponsor has the authority to amend the Declaration of Trust without Shareholder consent, including to increase the Sponsor's fee.