Author|Golem(@web 3_golem)
Traditional finance has come up with yet another new spin on Bitcoin.
On June 18th, Franklin Templeton filed an application with the U.S. SEC to launch two new Bitcoin DRIP ETFs, which feature the automatic reinvestment of stock dividends into Bitcoin. The two ETFs are the Franklin U.S. Equity Bitcoin DRIP Index ETF and the Franklin U.S. Innovation Bitcoin DRIP Index ETF, tracking the U.S. Large Cap 500 Index and the U.S. Innovation 100 Index, respectively, compiled by VettaFi.
The initial structure of both ETFs is highly compliant and secure: 95% U.S. traditional stocks (large-cap or innovative growth stocks) + 5% Bitcoin exposure. The initial 5% Bitcoin allocation will be rebalanced quarterly. If the weight exceeds the limit, the allocation will be adjusted down to between 4.5% and 5%. The Bitcoin allocation is only allowed to naturally increase to a maximum of 20% per quarter.
However, the truly interesting aspect of these two ETFs lies in their "modified" version of the traditional financial DRIP (Dividend Reinvestment Plan). A traditional DRIP automatically uses dividends to buy back the same stock to achieve compound interest, while Franklin's design is to automatically use stock dividends to acquire Bitcoin.
Therefore, the core logic of these two ETFs is to intercept all dividends generated by the underlying U.S. stocks, instead of reinvesting them in stocks, systematically and automatically converting them into Bitcoin purchasing power, diverting cash flow that originally belonged to the U.S. stock market to Bitcoin.
The market expects that if Franklin's application smoothly passes SEC review, it could begin trading as early as September this year. What is the fundamental difference between Franklin's Bitcoin DRIP ETFs and the existing Bitcoin spot ETFs? If approved, how much passive buying pressure could they bring to Bitcoin? Odaily Planet Daily will provide a brief analysis in this article.
Creating a New Flow of Funds for Bitcoin ETFs
The biggest difference between Bitcoin DRIP ETFs and existing Bitcoin spot ETFs is that spot ETFs involve investors actively buying Bitcoin, whereas DRIP ETFs automatically dollar-cost average into Bitcoin using dividends, creating a new source of Bitcoin demand.
The process for a Bitcoin spot ETF buying Bitcoin roughly is: investors are bullish on Bitcoin → buy the spot ETF → ETF manager buys Bitcoin → Bitcoin price rises. When the crypto market weakens, Bitcoin spot ETFs also face investor redemptions leading to Bitcoin sales. The general process is: investors turn bearish on Bitcoin → sell the spot ETF → ETF manager sells Bitcoin → Bitcoin price falls sharply.
Thus, essentially, Bitcoin spot ETFs can only add upward momentum to Bitcoin in a crypto bull market, while in a crypto bear market, they can become one of the biggest sources of selling pressure. For example, currently, the AI and semiconductor sectors are siphoning global liquidity, and Bitcoin is no longer the primary active asset allocation choice for traditional investors. Therefore, Bitcoin spot ETFs have experienced net outflows over the past two months.
According to SoSoValue data, Bitcoin spot ETFs saw net outflows exceeding $4.69 billion in May and June combined, with continuous net outflows for 13 consecutive days from May 15th to June 3rd, breaking the previous record of 8 consecutive days of outflows set in early 2025.
Bitcoin DRIP ETFs do not rely on investor sentiment. Their process for buying Bitcoin is roughly: underlying stocks generate dividends → ETF receives cash → automatically purchases Bitcoin exposure → creates continuous buying pressure. Even if investors do nothing, the Bitcoin position will keep growing. When Bitcoin DRIP ETFs sell Bitcoin is also clearly defined in the rules: quarterly rebalancing will sell any Bitcoin exceeding the 5% total asset allocation.
On the surface, this appears to be a regular sale of Bitcoin, but it essentially treats Bitcoin as a long-term gain factor within the U.S. stock market bubble.
Investors must go with the trend. Currently, the U.S. stock market is in a bull run driven by the AI tech revolution, while Bitcoin is in a cyclical bear market. Even if investors still believe Bitcoin will enter another bull market in the future, from an opportunity cost perspective, even conservative investors would choose to allocate to large-cap stocks over Bitcoin.
However, Bitcoin DRIP ETFs are pitching a highly attractive narrative to investors: preserve 95% of the gains from large-cap stocks, use only the at-risk-zero dividend income to bet on Bitcoin's risk/reward, all with strict 5% risk control. This mechanism lowers the psychological barrier for traditional high-net-worth individuals and institutions to enter. The 5% Bitcoin allocation essentially acts as insurance for the portfolio. If the AI bubble bursts and global capital flows back to safe-haven assets, Bitcoin may also rise.
The model of Bitcoin DRIP ETFs using dividends to dollar-cost average into Bitcoin also differs from strategies like MicroStrategy's treasury model. MicroStrategy's logic for accumulating Bitcoin is through issuing debt or equity to raise funds to buy Bitcoin, which is essentially leveraging. But once that leverage begins to be unwound, the buying pressure disappears and can even turn into significant Bitcoin sales. In contrast, Bitcoin DRIP ETFs accumulate Bitcoin based on a cash flow logic: as long as the underlying U.S. mega-cap companies continue to pay stable dividends, the ETFs can continuously purchase Bitcoin.
How Much Buying Pressure Can Bitcoin DRIP ETFs Create for Bitcoin?
In summary, for Bitcoin, Bitcoin DRIP ETFs represent a very high-quality source of liquidity, not only continuous but also highly price-insensitive. This innovation automates the conversion of corporate profits into price support for Bitcoin. So, if Bitcoin DRIP ETFs are approved, how much buying pressure can they create for Bitcoin?
According to Franklin's application documents, these two Bitcoin DRIP ETFs are not required to gain Bitcoin exposure solely by directly holding Bitcoin; they can achieve it through Bitcoin spot ETFs, Bitcoin futures, options, or other derivative instruments.
Therefore, Franklin's designed Bitcoin DRIP ETFs will not necessarily turn every dollar of dividend into a dollar of direct Bitcoin spot buying pressure.
In my estimation, it is highly likely that Franklin will choose to have the Bitcoin DRIP ETFs primarily purchase its own Bitcoin spot ETF (EZBC) to gain Bitcoin exposure. The reason is simple: Franklin is an asset management company. If Bitcoin DRIP ETFs buy EZBC to increase Bitcoin holdings, it means Franklin collects an extra layer of management fees from investors and completes an internal fund flow loop.
From the perspective of Bitcoin buying pressure, regardless of whose Bitcoin spot ETF product the Bitcoin DRIP ETF buys, it will eventually be transmitted to the Bitcoin spot market, albeit with an extra layer of ETF in between.
Assuming the future AUM of Bitcoin DRIP ETFs reaches $10 billion, with the average U.S. large-cap stock dividend yield at 1%-1.5%, they would generate $100 million to $150 million in annual Bitcoin buying pressure. However, for Bitcoin, such an inflow scale would not have a substantial impact on price. Currently, daily inflows/outflows for Bitcoin spot ETFs fluctuate by several billion dollars.
Therefore, for Bitcoin DRIP ETFs to create effective buying pressure support for Bitcoin, either Franklin's two Bitcoin DRIP ETFs would need to attract hundreds of billions of dollars in AUM (unrealistic, as Franklin's largest ETF product is only in the tens of billions), or other asset management giants would need to adopt similar mechanisms to accumulate Bitcoin, continuously growing the Bitcoin DRIP ETF pie.
