Original | Odaily Planet Daily (@OdailyChina)

Author | Golem (@web 3_golem)

Traditional finance has come up with new tricks for Bitcoin.

On June 18, Franklin Templeton submitted an application to the U.S. SEC to launch two brand-new Bitcoin DRIP ETFs, characterized by automatically reinvesting stock dividends into Bitcoin. These two ETFs are the Franklin U.S. Equity Bitcoin DRIP Index ETF and the Franklin U.S. Innovation Bitcoin DRIP Index ETF, which track the VettaFi compiled S&P 500 Index and the U.S. Innovation Index, respectively.

Both ETFs have a very compliant and secure initial asset structure: 95% traditional U.S. stocks (large-cap or innovative growth stocks) + 5% Bitcoin exposure. The initial 5% allocation weight for Bitcoin will be rebalanced quarterly; if the weight exceeds the limit, the allocation proportion will be reduced to 4.5%-5%, and Bitcoin's allocation can only naturally rise to 20% each quarter.

However, the truly interesting aspect of these two ETFs lies in their "magical modification" of the traditional finance concept of DRIP (Dividend Reinvestment Plan). A traditional DRIP automatically buys back the stock with dividends to achieve compound interest, whereas Franklin's design is to automatically use stock dividends for Bitcoin allocation.

Thus, the core logic of these two ETFs is to intercept all corporate dividends generated from U.S. stocks, no longer reinvesting in stocks, but systematically and automatically converting into Bitcoin purchasing power, redirecting cash flow originally belonging to the U.S. stock market into Bitcoin.

The market anticipates that if Franklin's application passes the U.S. SEC review smoothly, the ETFs could be launched as early as September this year. What essential difference do these two Bitcoin DRIP ETFs have compared to existing Bitcoin spot ETFs? If approved, how much passive buying pressure can they bring to Bitcoin? Odaily Planet Daily will provide a brief analysis in this article.

Creating New Cash Flows for Bitcoin ETFs

The biggest difference between Bitcoin DRIP ETFs and existing Bitcoin spot ETFs is that in a spot ETF, investors actively purchase Bitcoin, while DRIP ETFs use dividends to automatically invest in Bitcoin, creating a new source of Bitcoin demand.

The process for Bitcoin spot ETF purchases roughly goes: investors are optimistic about Bitcoin → purchase spot ETF → ETF management buys Bitcoin → Bitcoin price rises as a result, whereas when the crypto market weakens, Bitcoin spot ETFs will also feel selling pressure from investors demanding to sell Bitcoin. The general flow is: investors are bearish on Bitcoin → sell spot ETF → ETF management sells Bitcoin → Bitcoin plunges.

Therefore, essentially, Bitcoin spot ETFs can only contribute to Bitcoin's upward momentum during crypto bull markets and, during crypto bear markets, they may become one of the largest selling pressures. For example, currently, AI and semiconductor stocks are siphoning global liquidity, and Bitcoin is no longer the primary active asset allocation option for traditional investors, leading to a net outflow in Bitcoin spot ETFs over the past two months.

According to SoSoValue data, Bitcoin spot ETFs experienced a net outflow of over $4.69 billion in May and June, and there were 13 consecutive days of net outflows from May 15 to June 3, breaking the record of 8 consecutive days of net outflow set at the beginning of 2025.

Bitcoin DRIP ETFs do not rely on investor sentiment; their Bitcoin purchasing process closely follows: underlying stocks generate dividends → ETF receives cash → automatically purchases Bitcoin exposure → forms continuous buying pressure, so even if investors do nothing, Bitcoin positions will continuously grow. When Bitcoin DRIP ETFs sell Bitcoin is also explicitly stated in the rules; rebalancing occurs quarterly, selling Bitcoin that exceeds 5% of total assets.

On the surface, this appears to be a regular sale of Bitcoin, but it actually treats Bitcoin as a long-term gain factor amidst the U.S. stock bubble.

Investors must go with the flow; currently, U.S. stocks are in a rising bull market driven by the AI tech revolution, while Bitcoin is in a cyclical bear market. Even if investors still believe Bitcoin will again enter a bull market in the future, from an opportunity cost standpoint, even the most conservative investors will choose to allocate to large-cap stocks instead of Bitcoin.

However, Bitcoin DRIP ETFs are selling investors a highly enticing narrative: they retain 95% of large-cap stock returns, only needing to accept the dividend yield at risk of going to zero for a chance at Bitcoin's risk-reward, while also maintaining strict 5% risk control. This mechanism reduces the psychological entry barrier for traditional high-net-worth individuals and institutions. 5% Bitcoin asset allocation essentially provides insurance for the portfolio; if the AI bubble bursts, and global capital flows back into safe-haven assets, Bitcoin may also rise.

The model of investing in Bitcoin through dividends in Bitcoin DRIP ETFs also differs from the strategy of leveraging through debt or equity issuance to buy Bitcoin. The latter essentially uses leverage, but once the leverage begins to be liquidated, buying pressure will vanish, leading to mass Bitcoin sales. In contrast, the Bitcoin DRIP ETF's increase in Bitcoin is based on cash flow logic; as long as the underlying U.S. stock giants continue to pay dividends consistently, the ETF will keep buying Bitcoin.

How Much Buying Pressure Can Bitcoin DRIP ETFs Create for Bitcoin?

In summary, for Bitcoin, Bitcoin DRIP ETFs represent a very high-quality liquidity source that is not only sustainable but also highly insensitized to price fluctuations. This is an innovation that automatically converts the profits of real companies into support for Bitcoin prices. So, if Bitcoin DRIP ETFs are approved, how much buying pressure can they generate for Bitcoin?

According to Franklin’s application documents, these two Bitcoin DRIP ETFs do not necessarily need to hold Bitcoin directly to gain Bitcoin risk exposure; they can achieve this through Bitcoin spot ETFs, Bitcoin futures options, or other derivative tools.

Thus, the Bitcoin DRIP ETFs designed by Franklin do not necessarily turn every dollar of dividends directly into a dollar of Bitcoin spot purchases.

I speculate that in most cases, Franklin will likely choose to have the Bitcoin DRIP ETFs primarily purchase their own Bitcoin spot ETF (EZBC) to gain Bitcoin risk exposure. The reason is simple; Franklin is an asset management company, and if Bitcoin DRIP ETFs gain Bitcoin by purchasing EZBC, it is equivalent to Franklin charging investors an additional layer of management fees while completing an internal funding cycle.

From the perspective of Bitcoin buying pressure, regardless of which Bitcoin spot ETF product Bitcoin DRIP ETFs purchase, the effect will ultimately be transmitted to the Bitcoin spot market, merely with an additional layer of ETF in between.

Assuming in the future Bitcoin DRIP ETFs reach $10 billion in AUM and the average dividend yield of U.S. large-cap stocks is 1%-1.5%, then it would generate $100 million to $150 million in Bitcoin buying pressure annually. However, for Bitcoin, such an inflow scale would not have a substantial impact on price, as current daily fluctuations in Bitcoin spot ETFs can easily reach billions of dollars.

Therefore, to create effective buying support for Bitcoin through Bitcoin DRIP ETFs, either Franklin’s two Bitcoin DRIP ETFs need to attract hundreds of billions in AUM (unlikely, as Franklin's largest ETF product is also in the tens of billions level), or other asset management giants must adopt a similar mechanism to increase Bitcoin holdings, continuously enlarging the Bitcoin DRIP ETF market.

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