Since the gobbling happens during the floating down action, and not after the wallet's hit bottom, you want a construction that's continuous. Therefore, floating is better. However, you already have another continuation 'flag', for lack of a better term, in that 'as'. That 'as' puts you in the middle of the action (in this case the watching, I believe), and frees you to use 'float'.
Therefore, either sentence works, and you can choose whichever feels better to you.
That said, I think you have more problems than just float/floating. Like the fact they've only stepped outside, they're not over water when he drops the wallet. Unless they're already in some boat, you should replace "went outside" with "went to the _____ (river/lake/pier/boat/etc.)".
Also, it's "to fish, not "for fishing".
You don't need "both" in "as they both watched". "They" already refers to the two of them.
"the water" should be in sentence #2, telling the reader what Mike dropped his wallet into, and removed from sentence #3 since it's understood the bottom refers to the water bottom.
"fish came in": 'to be' and 'to go' verbs are weak, and easily over used. They're not interesting since they are very generic action verbs. I'd suggest replacing "came" with something like "zipped", "dashed", "darted", or even just plain old "swam".
And finally, you don't need to repeat "the wallet" twice in the last sentence. It's repetitive, so replace the second one with "it" -- "gobbled it up". This holds true even if you split that last sentence into two, which is something I would do (but that's my style). If you did that, you could even replace both "the wallet"s with "it"; you can't if it's one sentence because then you'd have a repetitive "it".