Franklin Crypto Trust (EZPZ) risk factors, FY2025 10-K

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1. 01You should carefully consider the factors discussed in “Risk Factors” in our Prospectus, which could materially affect our business, financial condition or future results. Other than as set forth below, there have been no material changes in our risk factors from those disclosed therein
2. 02Risk Factors Related to Digital Assets
3. 03Digital Assets represent a new and rapidly evolving industry, and the value of the Shares depends on the acceptance of Digital Assets
4. 04A temporary or permanent “fork” could adversely affect the value of the Shares
5. 05The Fund’s fee structure relative to other competitor Digital Asset products, among other factors, could have a detrimental effect on the scale and sustainability of the Fund
6. 06Risk Factors Related to the Fund and the Shares
7. 07Digital Asset transactions are irrevocable and stolen or incorrectly transferred Digital Assets may be irretrievable. As a result, any incorrectly executed Digital Asset transactions could adversely affect the value of the Shares
8. 08Loss of a critical banking relationship for, or the failure of a bank used by, the Prime Broker could adversely impact the Fund’s ability to create or redeem Creation Units, or could cause losses to the Fund
9. 09The success of the Fund depends on the development and commercialization of the Underlying Index, which is a highly competitive industry, and the Fund may not be commercially successful
10. 10Risk Factors Related to the Regulation of the Fund and the Shares
11. 11If regulators subject the Fund, or the Sponsor, to regulation as a money services business (“MSB”) or money transmitter, this could result in extraordinary expenses to the Fund or the Sponsor and also result in decreased liquidity for the Shares
12. 12The Fund will not directly or indirectly participate in any staking program, and accordingly the Shareholders will not receive any staking rewards or other income
13. 13The acceptance of software patches or upgrades by some, but not all, nodes, users and validators in a Digital Asset’s network could result in a “fork” in such network’s blockchain, resulting in the operation of multiple separate networks
14. 14Users, protocol and application developers and validators may otherwise switch to or adopt certain digital assets at the expense of their engagement with other digital asset networks, which may negatively impact those networks, including the Digital Asset networks
15. 15Changes in the governance of a digital asset network may not receive sufficient support from users and validators, which may negatively affect that digital asset network’s ability to grow and respond to challenges
16. 16Potential amendments to Digital Asset networks' protocols and software could, if accepted and authorized by the applicable Digital Asset's network community, adversely affect an investment in the Fund
17. 17Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful
18. 18Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital assets
19. 19Liquid staking applications pose centralization concerns
20. 20For example, a significant upcoming planned hard fork on the Solana network—referred to as “Alpenglow”—was announced by the core developers in May 2025 and aims to reduce transaction finality time and enhance network security
21. 21In addition, many developers have previously initiated hard forks in the Blockchain to launch new digital assets, such as Bitcoin Gold and Bitcoin Diamond. To the extent such digital assets compete with bitcoin, such competition could impact demand for bitcoin and could adversely impact the value of the Shares
22. 22Shareholders will not receive the benefits of any Incidental Rights and any IR Virtual Currency, including any forked or airdropped assets
23. 23In the event of a hard fork of a Digital Asset’s network, the Sponsor will, if permitted by the terms of the Declaration of Trust, use its discretion to determine which network should be considered the appropriate network for the Fund’s purposes, and in doing so may adversely affect the value of the Shares
24. 24A hard fork could change the source code to the Bitcoin network, including the 21 million bitcoin supply cap
25. 25Any name change and any associated rebranding initiative by the core developers, users, miners or validators of a Digital Asset or a Digital Asset's network may not be favorably received by the digital asset community, which could negatively impact the value of Digital Assets and the value of the Shares
26. 26Validators may suffer losses due to staking, or staking may prove unattractive to validators, which could make the Ethereum network less attractive
27. 27Proof-of-stake blockchains are a relatively recent innovation, and have not been subject to as widespread use or adoption over as long of a period of time as traditional proof-of-work blockchains
28. 28The value of the Shares relates directly to the value of Digital Assets which has been in the past, and may continue to be, highly volatile and subject to fluctuations due to a number of factors
29. 29the Fund’s own acquisitions or dispositions of Digital Assets, since there is no limit on the number of Digital Assets that the Fund may acquire
30. 30Because the Fund holds only Digital Assets and cash, an investment in the Fund may be more volatile than an investment in a more broadly diversified portfolio
31. 31Coinbase serves as the Digital Asset Custodian and prime execution agent for several competing exchange-traded Digital Assets products, which could adversely affect the Fund’s operations and ultimately the value of the Shares
32. 32The Underlying Index and the CF Reference Rates have a limited performance history, the CF Reference Rate prices could fail to track the price of each Digital Asset, respectively, and a failure of a CF Reference Rate price could adversely affect the Underlying Index and the value of the Shares
33. 33The Underlying Index has a limited performance history, and its methodology may be subject to change
34. 34The CF Reference Rates’ prices used to calculate the value of the Fund’s Digital Assets may be volatile, adversely affecting the value of the Shares
35. 35The Fund’s investment policies are rules-driven, which may lead the Fund’s portfolio to be underrepresented with respect to digital assets that are increasing in value and/or overrepresented with respect to digital assets that are declining in value
36. 36The Fund will not track the Underlying Index exactly and the Fund’s investments may diverge from those comprising the Underlying Index
37. 37The Index Provider could experience system failures or errors
38. 38Competition from central bank digital currencies (“CBDCs”) and emerging payments initiatives involving financial institutions could adversely affect the value of Digital Assets and other digital assets
39. 39Prices of Digital Assets may be affected due to stablecoins (including Tether and US Dollar Coin (“USDC”)), the activities of stablecoin issuers and their regulatory treatment
40. 40Competition from the emergence or growth of other digital assets or methods of investing in the Digital Assets could have a negative impact on the price of the Digital Assets and adversely affect the CF Reference Rates, the Underlying Index and the value of the Shares
41. 41Competitive pressures may negatively affect the ability of the Fund to garner substantial assets and achieve commercial success
42. 42Operational cost may exceed the award for validating transaction, and increased transaction fees may adversely affect the usage of the Digital Asset networks
43. 43The Fund may be negatively impacted by the effects of the spread of illnesses or other public health emergencies on the global economy and the markets and service providers relevant to the performance of the Fund
44. 44The amount of the Fund’s assets represented by each Share will decline over time as the Fund pays the Sponsor’s Fee and additional expenses borne by the Fund, and as a result, the value of the Shares may decrease over time
45. 45Some Digital Asset networks are supported by foundations and/or founding teams that may influence the development of the network
46. 46An investment in the Shares deviates from a direct investment in Digital Assets
47. 47There could be situations in which Fund is unable to hold all of the Digital Assets included in the Underlying Index
48. 48The value of the Shares may be influenced by a variety of factors unrelated to the value of Digital Assets
49. 49The Fund and the Shares may be negatively affected by Authorized Participant Concentration
50. 50Certain shareholders may from time to time own a substantial amount of the Fund’s Shares
51. 51The Trust is an “emerging growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the Shares less attractive to investors
52. 52exemption 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
53. 53The Fund is subject to certain risks due to its concentration in only Digital Assets
54. 54The lack of an active trading market for the Shares may result in losses on your investment at the time of disposition of your Shares
55. 55The Fund’s use of cash creations and redemptions, may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the price of Digital Assets and, as a result, the price of the Shares may fall or otherwise diverge from NAV
56. 56As an owner of Shares, you will not have the rights normally associated with ownership of other types of shares
57. 57The Sponsor may amend the Declaration of Trust without the consent of the Shareholders
58. 58Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act or the protections afforded by the CEA
59. 59The Trust is not a registered investment company under the Investment Company Act, and the Sponsor believes that the Trust is not required to register under such act. Consequently, Shareholders do not have the regulatory protections provided to investors in investment companies
60. 60As the Sponsor and its management have limited history of operating investment vehicles like the Fund, their experience may be inadequate or unsuitable to manage the affairs of the Fund
61. 61Security threats to the Fund’s account at the Digital Asset Custodian could result in the halting of Fund operations and a loss of Fund assets or damage to the reputation of the Fund, each of which could result in a reduction in the value of the Shares
62. 62Digital Assets transactions are irrevocable and stolen or incorrectly transferred Digital Assets may be irretrievable. As a result, any incorrectly executed Digital Assets transactions could adversely affect the value of the Shares
63. 63The lack of full insurance and Shareholders’ limited rights of legal recourse against the Fund, Trustee, Sponsor, Administrator, Cash Custodian, Prime Broker and Digital Asset Custodian expose the Fund and its Shareholders to the risk of loss of the Fund’s Digital Assets for which no person or entity is liable
64. 64If the Trade Credits are not available or become exhausted, the Fund may face delays in buying or selling Digital Assets that may adversely impact Shareholders; if the Fund does not repay the Trade Credits on time, its assets may be liquidated by the Trade Credit Lender and its affiliates
65. 65The Prime Broker routes orders through Connected Trading Venues in connection with trading services under the Prime Broker Agreement. The loss or failure of any such Connected Trading Venues may adversely affect the Prime Broker’s business and cause losses for the Fund
66. 66The Sponsor may terminate and liquidate the Fund or Trust for any reason in its sole discretion. See “Termination Events"
67. 67The Declaration of Trust includes provisions that limit Shareholders’ voting rights and the ability to participate in shareholder derivative actions
68. 68The Sponsor is solely responsible for determining the value of the net asset value of the Fund, and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares
69. 69Extraordinary expenses resulting from unanticipated events may become payable by the Fund, adversely affecting the value of the Shares
70. 70The value of the Shares will be adversely affected if the Fund is required to indemnify the Sponsor, the Trustee, the Administrator, the Digital Asset Custodian or the Cash Custodian pursuant to its contractual arrangements
71. 71Intellectual property rights claims may adversely affect the Fund and the value of the Shares
72. 72Moreover, President Trump has issued executive orders addressing the administration’s intention to establish comprehensive digital asset regulatory framework. There have also been several bills introduced in Congress that propose to establish additional regulation and oversight of the digital asset markets
73. 73A determination that the Digital Assets or any other digital asset is a “security” may adversely affect the value of a Digital Asset and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Fund
74. 74Competing industries may have more influence with policymakers than the digital asset industry, which could lead to the adoption of laws and regulations that are harmful to the digital asset industry
75. 75Regulatory changes or actions in foreign jurisdictions may affect the value of the Shares or restrict the use of one or more digital assets, validating activity or the operation of their networks or the digital asset platform market in a manner that adversely affects the value of the Shares
76. 76If regulators or public utilities take actions that restrict or otherwise impact mining activities, there may be a significant decline in such activities, which could adversely affect the Digital Asset’s networks and the value of the Shares
77. 77If regulators subject the Fund or the Sponsor to regulation as a money services business or money transmitter, this could result in extraordinary expenses to the Fund or the Sponsor and also result in decreased liquidity for the Shares
78. 78Anonymity and illicit financing risk
79. 79Regulatory changes or interpretations could obligate the Fund or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Fund
80. 80The Fund could be treated as a corporation for U.S. federal income tax purposes, which may substantially reduce the value of your Shares
81. 81Shareholders could incur a tax liability without an associated distribution of the Fund
82. 82Shareholders of the Fund may recognize significant amounts of ordinary income and short-term capital gain
83. 83Limitations on Deduction of Fund Expenses
84. 84No Deduction for Qualified Publicly Traded Partnership Income
85. 85Shareholders will receive partner information tax returns on Schedule K-1, which could increase the complexity of tax returns
86. 86If the Fund is required to withhold tax with respect to any Non-U.S. Shareholders, all Shareholders may bear the cost of such withholding
87. 87Due to the new and evolving nature of digital currencies and the absence of comprehensive guidance with respect to digital currencies, many significant aspects of the U.S. federal income tax treatment of digital currency are uncertain
88. 88Future developments regarding the treatment of digital currency for U.S. federal income tax purposes could adversely affect the value of the Shares
89. 89Future developments in the treatment of digital currency for tax purposes other than U.S. federal income tax purposes could adversely affect the value of the Shares
90. 90A U.S. Tax-Exempt Shareholder may recognize “unrelated business taxable income” a consequence of an investment in Shares
91. 91A hard “fork” of a Digital Asset blockchain could result in Shareholders incurring a tax liability
92. 92Potential conflicts of interest may arise among the Sponsor or its affiliates and the Fund. The Sponsor and its affiliates have no fiduciary duties to the Fund or its Shareholders, which may permit them to favor their own interests to the detriment of the Fund and its Shareholders
93. 93By purchasing the Shares, Shareholders agree and consent to the provisions set forth in the Declaration of Trust
94. 94Shareholders cannot be assured that the Sponsor will be willing or able to continue to serve as sponsor to the Fund for any length of time. If the Sponsor discontinues its activities on behalf of the Fund and a substitute sponsor is not appointed, the Fund will terminate and liquidate its Digital Assets
95. 95Although the Digital Asset Custodian is a fiduciary with respect to the Fund’s assets, it could resign or be removed by the Sponsor, which may trigger early dissolution of the Fund
96. 96Shareholders may be adversely affected by the lack of independent advisers representing investors in the Fund
97. 97Shareholders and Authorized Participants lack the right under the Custodian Agreement to assert claims directly against the Digital Asset Custodian, which significantly limits their options for recourse
98. 98Risk Factors Related to ERISA