Mike Willis, Cyber Hornet ETFs
The Bitcoin ETF Built to Survive a Drawdown
Mike Willis spent twenty-five years on Wall Street, at Smith Barney, Paine Webber, and UBS, before he started his own shop. He is the co-founder and CEO of Cyber Hornet ETFs, home to two funds that each try to fix something traditional asset management has been slow to address. BBB, the S&P 500 and Bitcoin 75/25 Strategy ETF, gives advisors a way to put crypto in client portfolios without the volatility blowing up the relationship. INDEX, the firm's S&P 500 fund, built in shareholder voting input years before the major issuers offered any version of it.
The origin story is the part that sticks. In 2013 the S&P 500 returned 32 percent. Mike's portfolios returned 14 to 16 percent. Thousands of hours of work, beaten by the cheapest product on the market. That gap sent him down a path that ended with his own firm and a meeting with Jack Bogle three months before Bogle died. The lesson he took was not that active management is dead. It was that the wrapper and the cost structure matter as much as the idea inside them.
BBB is built around a number most people argue about: 75/25, not 50/50, and not a token 10 percent Bitcoin sleeve. Mike's case is that 75/25 is the allocation an advisor can actually hold through a full cycle. We get into what the fund did in practice, up sharply in Bitcoin's 2024 run, holding positive in a down 2025, and staying inside a tight band so far in 2026. The mechanism underneath is a monthly rebalance that trims Bitcoin after it runs and adds after it falls, a discipline that takes the emotion out of the call.
We also get into why Cyber Hornet stayed in Bitcoin futures for more than a year after spot ETFs launched. The short version is custody. Early on, too much of the spot market ran through a single custodian, and Mike was not willing to take that concentration risk with client money until the picture broadened. It is a useful window into how a careful issuer thinks about structure instead of headlines.
Then there is the voting fight. Jack Bogle warned that a handful of firms would end up controlling an outsized share of index fund voting power, and Mike puts the number around three firms and 81 percent. INDEX was his early attempt to give shareholders a voice in that process before the big issuers offered anything similar. His one regret is not pushing harder on full pass through voting when Cyber Hornet had the first mover lead.
Most Bitcoin conversations are arguments about price. This one is about how you build a product clients can actually live with, and whether the wrapper around an idea matters as much as the idea. If you have been trying to fit digital assets into a real book, it is worth your time.
Full Transcript
5,199 wordsMachine transcribed from Brad Roth's conversation with Mike Willis, Cyber Hornet ETFs, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
Welcome to Behind the Ticker, the podcast where we go beyond the symbol and into the strategy. I'm Brad Roth, founder and chief investment officer at Thor Funds. And in each episode, I sit down with ETF managers, CIOs, and industry leaders to break down how these funds are actually built, how they behave in real markets, and how advisors use them in real portfolios. Most people just see a ticker symbol, but we know much more goes on behind the ticker.
Hey, Mike, welcome to the show. Hey, Brad, thanks for having me.
So before we get started, why don't you give everybody a bit about your background? It looks like you got 25 years on Wall Street, came up through Smith Barney, Payne Weber, and UBS, and at some point you decided to start your own shop. Can you kind of walk us through how the whole thing unfolded and how we got to where we are today?
Sure. Yeah, I traded my way through grad school, so all I've ever done is Wall Street. And my initial goal was to find the Holy Grail. it was to do, this was in the 90s, so this dates me, but it goes back to before it predates real-time tick data on the internet. So I had to satellite feed it into my house, and I traded in the mornings. I was out in California, and shut things down at one o'clock and went to university. So I've been trading since then. I haven't done anything else. And as my career progressed, I went to work for Smith Barney, and trying to beat the market for clients, and then slowly moved into some of their more asset allocation products, relying more on the asset allocation than the trading aspects,
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But still trying to beat the market with the asset allocation. When I say market, I mean the S&P 500. So every quarter review, every annual review we did for clients, we would benchmark the S&P 500. And I noticed that it's a benchmark I was proud of for seven years to beat. And then in 2013, the S&P did 32% or somewhere around there, and we did about 14 to 16% for our clients. And I realized, we had spent thousands of hours on our portfolios, and we were beat by, one of the cheapest products in the market. And I started to realize how difficult it is to beat the S&P 500 over time. And so we adjusted, we went out and got the index ticker symbol.
It was not taken yet. most TradFi companies, legacy financial companies, they want their letter first. So Fidelity, most of their tickers start with an F, Vanguard starts with a V. So no one had index and why Jack Bogle and Vanguard didn't have that ticker symbol. It's just, sucks for them. But it was a good thing for us. And we launched an S&P 500 index fund, because we felt they, out of all the indexes, they were the index benchmark we wanted to bring to the world. We wanted to do it in a different way. we wanted to be founder run, we're non-institutional, BlackRock State Street and Vanguard, dominate that space.
We wanted to give, I met with Bogle for an hour in his office three months before he died. And he wrote, the last op-ed he wrote for Wall Street Journal was how, the largest index fund companies were going to have virtual voting control over all the major companies in America. And so, yeah, we wanted to offer an alternative, if you don't want BlackRock voting your shares, we're founder run. So we started focusing on that. And then crypto hit, Bitcoin hit, and I became a Bitcoiner. And so we realized we wanted to bring crypto into the S&P 500 space quicker than it will naturally or organically happen. Coinbase got added to the S&P 500 and some others, but pretty low percentage weighting to crypto. And so we came up with our methodology,
The 7525 launched our own ETF company, and that's where we are.
That's great. And so before we get into that, because I want to talk about both of those things in a little bit more detail, I always have to ask, outside of work, you're not behind the screens, any hobbies, what do you like to do?
Yeah, I love the ocean. I grew up in Guam and Hawaii and all over Southeast Asia. So I need the saltwater to restore. And so I sup, I surf, I do things in the water, and Florida is pretty good for that.
Yeah, no, I need, as we were talking earlier, I'm in Pittsburgh and I don't get too much saltwater. So those vacations are nice for a refresh and get your bare feet on some sand. So a little jealous of that, especially when I'm going through winter up here. But let's talk about Cyber Hornet ETFs. You kind of gave us a high level of what you're trying to do, but really what is the mission? Because you have the index product and you have the crypto product. So what is the mission over there at Cyber Hornet?
Yeah, our mission is to bridge TradFi to DeFi. And we're going to do, we're really targeting that what we call the third wave, first wave into Bitcoin were the unregulated wave and about a trillion in assets came in over 15 years from starting in 2009. And then about two years ago, wave number two, Bitcoin became legal inside regulated exchanges and ETF products. And so you had one of the best launches of a new asset class on Wall Street through ETF products. And we call that wave number two. These are people that already were sold on crypto or Bitcoin and just wanted to access it through their normal account and not try to figure out public private keys, digital wallets, unregulated exchanges. So opened up a brand new space for Bitcoin and we call that
Wave number two. The third wave, wave number three are the 320,000 financial advisors in the marketplace. They are gatekeepers to 30 trillion in assets. And so we wanted to give them an S&P 500 access to crypto in part so that if a black swan event did happen and that particular crypto went to zero, you could potentially only be down 25% in the portfolio with the remainder being in that one of the most popular indexes on Wall Street. And that's not a lawsuit. So I think, yes, you can own both individually. You can go out and get the cheapest S&P 500 index fund on the market, the cheapest Bitcoin ETF in the market. But in the end, what's your plan? What's your crypto plan? How are you going to allocate that? How are you going to not let it overwhelm your portfolio
When crypto is doing well and vice versa? Because the big drops do happen. So if you let crypto, we believe we're early, we believe it is going to be a good 10 year run on it. But crypto has a way of pulling back 50, 60, 70%. And so even though it has returned higher returns than any other asset class, at least Bitcoin over the last 10 years has, it also is one of, if not the most volatile. And so it can easily take over your portfolio if you don't have a plan. And all of a sudden, a 40% drop is massive in your portfolio, let alone 50, 60, 70. And we're going through
A 50 plus pullback right now. Yeah, no, it's definitely crypto is back in the news. And I was reading an article today, it's first time in a long time, Michael Saylor is kind of in the water on some of his positions. He's kind of been the most popular, like Bitcoin maximalist out there. But I have to ask like one random question before we get into the
ETFs. Where'd the name Cyber Hornet come from? Yeah, Cyber Hornet is a Michael Saylor invention. So his pinned tweet for the last six years up until two months ago on Twitter was, Bitcoin is a swarm of Cyber Hornets. And then it went on from there. But the mascot caught on with Bitcoiners. And so Cyber Hornet is a reference to that. And we can attribute that to Michael Saylor.
Got it. So let's get into the flagship fund on the crypto side, which is BBB, BBBs. It's the Cyber Hornet, S&P 500 and Bitcoin 7525 strategy ETF. You guys launched this at the end of 2023. You touched on this briefly, but at a high level, what is the problem that this fund is really trying
To solve? Yeah, that's a great question. So first off, let me start out by answering that with three scenarios that happened over the last three years. So in 2024, when BBB started out, Bitcoin was on a tear, did really well. So instead of, and again, we do 75% S&P 500 and then 25% Bitcoin in that BBB product. So instead of getting 25% annual returns in your S&P product, your S&P 500 index product ETF, we got you 39%. So you got an extra 14% kicker by having Bitcoin in there.
The next year, 2025, which was last year, Bitcoin had a down year. So if you held IBIT, the number one Bitcoin ETF on the market, you were down 7% last year. We were up 10%. BBB was up 10% last year. And then conversely, year to date, we're going through a massive crypto winter. Bitcoin, Solana, Ethereum, XRP, four of the top cryptocurrencies in the market from their October highs are off 50%, 60%, and 70%. So, and BBB has been basically down 5% to plus 5% during this period. So it's done exactly what we wanted to do, which was and is to keep investors exposed to crypto for the next decade.
Because if they're, if they own crypto outright or 100% allocations to it, they're going to, they're going to, I've been trading my whole life. I can tell you, clients can handle about a 30% down and, and beyond that, it starts to get dicey for them. And they'll start calling you at down 35, down 40, down 45, they're normally out down 50. They're certainly out down 60s, potentially, you'll lose that client as a, as an FA. So our goal is to give, because we think we're early, we think crypto is a new asset class and it's founded on, on Bitcoin. we're primarily, we're primarily Bitcoin, but we do admit that there's going to be other protocols that benefit from the new Bitcoin economy. And so what we do, instead of
Trying to guess out of the hundreds of thousands of tokens that are in the market, we let the public push them up into the crypto top 10 by market cap. And then we'll start paying attention to them and say, okay, so here's some other ones, because there's a lot of people that think they missed, they missed the boat on Bitcoin. It's already made its run. I want to buy one of these other guys that's, up, only at a dollar, $10 or a hundred bucks. So we admit there's still going to be a market there. And advisors certainly want to offer their clients more than one position, but our primary, make no mistake, the backbone and foundation of the whole crypto economy is Bitcoin.
So as you mentioned, the structure, 75% S&P, 25% Bitcoin futures, walk us through the blend. Like why 75-25? Does that have everything to do with where you're comfortable with drawdowns and volatility? why not 60-40? Like what was the methodology behind, okay, we're going to go with 75-25?
Yeah, we did. We definitely did the back modeling on that to try to figure out where the sweet spot was. And if you take the, every four years, Bitcoin goes through a big pullback. And as we were talking about before, where is that threshold that clients bail? And so we, what we're trying to do is do an allocation to Bitcoin that was meaningful. If Bitcoin takes off and that wouldn't destroy the portfolio during the years, it tanks. And so that sweet spot happened. We did check out 60-40 because, we do think crypto is a potential replacement to bonds, even though right now, nobody's going to say that because, it's off 50% plus. So nobody's liking crypto at the moment.
But in terms of where we wanted it to set, we wanted, we wanted investors, it wanted the worst years to be, in the down 30% arena, 30 to, under 40% down. And then on the upside, we didn't want it to be, if we take it down to, 10-15% of the portfolio, we just didn't feel like it was a meaning, enough of a, enough of a gain for the investor over the long run. And we really do have a bullish outlook over the last, over the next decade. So that's why we came up with the 75-25. But we did look into 50-50, 60-40, and all the different allocations. And 75-25 seemed to be the sweet spot.
And so the monthly rebalance is doing a lot of work here for you. So as I just mentioned, it's going to, you're going to rotate this portfolio, rebalance it every single month back to 75-25. When Bitcoin rips, you're systematically taking profits and rotating into equities. When it pulls back, you're buying more. So you could, can you talk about how that discipline plays out well for the investor over time?
Yeah, it's a built-in buy low, sell high code. Because it essentially, this is a great example, right this minute, we did a rebalance yesterday, and crypto's getting its butt kicked. And then you have the S&P still hitting new highs. So, you got a great situation where we're selling high, we're selling the S&P high, and we're getting some great pricing on the crypto side. So, and we don't use futures anymore. We did that initially. There were some reasons for that. All of our ETFs now are spot. But we can walk through that if you want to know what our process was there. But right now, it's all crypto. And we just decided we didn't want the tracking error. And we were willing to, that we think the custody risk of holding the
Coins has gotten to a point now where we're comfortable with the custodians that are out there. So one of the best benefits of a futures contract is there really are no coins to protect. So you have the CME backing. And that's why we held on to the futures so long. But we recently converted this year over to all spots so that we eliminate that tracking error.
Interesting. And this isn't a question I had, but what was it like just operationally and, with the SEC? Just talk me through that process of moving from futures into spot. Was that a heavy lift for you guys? Or now since, the market's maybe more comfortable, I believe the first spot Bitcoin ETF was probably released going back three years ago now. So was it, how was that process just out of curiosity?
Yeah, I don't know if you remember, but back I think in 2018, the CME, it was the first time they started trading Bitcoin futures and pretty much top ticked the market. It jacked Bitcoin up to 20,000. It was in December, I think it was mid-December. And the day it started trading on the CME, Bitcoin futures, pretty much was the top and it tanked from there. And so a lot of people, a lot of OG Bitcoiners pointed to Wall Street, putting their dirty little fingers in and stirring the pot up and manipulating the prices by being able to sell futures long or short in the open market. And so whether or not that's true or not, the CME backs contracts, that futures contracts that it regulates. So, and it regulates wheat, barley, oil, all the commodities.
So one of the cool things about a Bitcoin futures contract is if there's no counterparty risk, if you have the counterparty fail, the CME steps in to make sure that contract is fulfilled. So that was a big plus, we thought. And then, so we launched BBB in December, which spot Bitcoin ETFs weren't allowed at that time, December of 2023. So then in January, the next month, they got approved out of the blue. that was so quick after dragging their heels for, 10 years, all of a sudden BlackRock throws its hat in the ring and the SEC basically on a first pass approves that we thought it would drag out a little longer, but sure enough, they gave them the approval in
January. And then we looked at the custody options. We saw that Coinbase was a single point of failure risk. at that point, it had over 70% of the ETF coins and we weren't in any hurry to, move over and custody our assets with Coinbase because if there's one hack at Coinbase, the tree, the tree falls. So we stayed in Bitcoin futures. Bitcoin futures are actually a lot harder to trade than spot. So you have the contango and backwardation to deal with. You have, I had to go out and get my series three. And you deal with the NFA. So not only the SEC, but the NFA. So we're filing two different sets of compliance policies and procedures, one for each. And the NFA is its own
Entity. So you're dealing with a CFTC. So there's a lot of extra layers of regulation that come involved with that. So, but the process back out was actually easier because trading spot is like trading a stock. And, and I've done that my whole career. So being lead portfolio manager on the ETFs, I can tell you it was a much easier process. And we, our last futures contract we held in March. Um, so we've been spot, uh, on the last two months and haven't had a hiccup.
Great. So BBB returned a big number in 2024. I always like to leave numbers out. So compliance doesn't throw a tizzy, but it ranked in the top 2% of all Morningstar large blend category funds. Can you talk us through that year a little bit and what a year like that does for eyeballs on the fund and getting attention, uh, over at Cyber Hornet to help you guys with your distribution and growth plans?
Yeah, I think it's a huge, it's a huge deal, especially they had us, Morningstar had us in the large cap blend category, which is the best category. It's the one advisors allocate, um, up to 40% of their portfolio and large cap growth and value and blend. So that's the category, that large cap blend, that's the same one SPY is in and, and all the other, um, large cap ETF, the largest, um, ETFs in the business. So it, it was, um, it was big because we felt 75% of our, and we felt we fit in that category because 75% of our portfolio sits in large cap blend. But recently Morningstar pulled us out of the category and said we didn't fit in that category. So unfortunately we're waging that battle right now with them because we think
If we could have stayed in that category, it would have given us a lot of exposure to advisors and now we're in some miscellaneous category that we're trying to get recategorized out of. Um, because I do think Morningstar, especially with financial advisors is a big deal. Um, but in regards to that year specifically, we also manage an S&P 500 index fund, a pure one that we talked about at the beginning, uh, the, uh, the INDEX one. And that one, um, did about 25% that year as did, uh, the others out there, SPY and the rest of them. Um, but BBB did 39%. So that extra Bitcoin was up huge. And that extra 14% um, isn't a lot for a Bitcoiner, they were over there in Bitcoin and saying, you know,
What do we care about? we want the full return of Bitcoin. Well, we get that. I'm a Bitcoiner. I get that, that you want that, but most people don't have these diamond hands or able to hodl H, hang on for dear life. Hodl is the phrase in the crypto world, but, um, and having, having diamond hands, it's very difficult to hold through a 70% pullback. So we don't think most investors get that bang. So here's like a big point I like to make is if you look on some of the returns on the big down years, um, there are the big up years are preceded by a big down year. And, um, and so it's wrong to say, I know one of them was up 157% the next year, but who got that?
Because they got washed out the year before and how long did it take them to get back in? So it looks amazing. And you're like, what's an extra 19% when I could have got 157. But the bottom line is most people wouldn't have been in. And the whole point of our methodology is to keep people in the market.
So that's what I was going to ask next. Like who is BBB designed for? And maybe we can expand this question because the most important thing the crypto community has to do is advisor education. Um, because this is the first asset class, uh, in a long time that I think clients were bringing to advisors and saying, how do I, how do I look at this? I want it in my portfolio. How should we implement it? So when you're sitting down with advisors, like how would you, how are you helping educate that advisor? How are you positioning BBB in a portfolio? Basically how they should use it in an already diversified model portfolio?
A great question. Yeah. Most advisors don't know the difference between Bitcoin, Solana, Ethereum, XRP, let alone the others. Um, but they really are hungry to understand Bitcoin and how it works because they realize even if they don't, um, have any confidence in it yet, they realize it is, 20 to 30% of their clients are buying it around them. And so it's something they need to know about. They need to have, we believe they need to have a digital asset plan. So we're rolling out a whole series, a core series, a 21 part series on the core features of Bitcoin. Um, and we're going to do webinars for advisors, um, to educate them on just so that they, they can talk sensibly about it if the conversation comes up. Uh, but more than that, we think they
Should, what we're advising is that they need to have a digital asset plan. If you want to keep those assets in house, um, satisfy their, their Bitcoin demand, keep the assets in house, but still protect your, your fiduciary risk and their volatility. Um, because no advisor wants calls every time an asset class is up or down 20% a week. So, um, the advisor can sit there and do the 75, 25 rebalancing themselves, but there's, they're going to be taking all the calls. And if the client forces them to sell out when it's down 50%, you've got a disgruntled client or maybe even a fiduciary issue. So what we're trying to do and what we tell our advisors is if you want a 2.5% allocation in Bitcoin, then
You'd have to put 10% of BBB in your model portfolios to get that two and a half percent. And we think that's better than them putting two and a half percent in IBIT and, uh, eight and a half
Or seven and a half percent in, uh, SPY. Well, also, you being in an ETF wrapper just adds a layer of efficiency, not only ease, but a layer of, potential tax efficiency in the wrapper rather than them doing the transactions, themselves. And so I can see a lot of the benefit there. Um, with the time we have left, I want to talk about index, it's a pure S and P500 tracker, but it's got a really interesting twist. It's, it's something called index voting choice. Can you walk us through what that is and the problem that you're trying to solve with the big three, as you had mentioned really early on this call, controlling 81% of index fund voting?
Yeah. Um, I'd love to, cause we really pioneered this space. Um, several years ago, we brought this to our attorneys because there were no mutual funds or ETFs on the market that allowed voter choice, um, or that included voter included shareholders in the voting proxy voting process. And so we wanted a hundred percent pass through voting because we have the tech now. before it, it was just not, it wasn't sensible to try to, we have, um, just under 10,000 shareholders of index and, and, and the bigger ETFs, obviously, millions in some case. So how would you ever get the, an S&P 500 has 500 companies. So when you buy Tesla stock, you have the right to show up to the shareholder meeting and vote. But when you buy Tesla stock
Through an S&P 500 index fund, BlackRock, State Street, Vanguard, do it on your behalf. So you're giving up that right. And so we, we really felt, um, it's an, if you look in the '40 Act, it's an obligation of the, the investment advisor to vote, vote in the best interest of the shareholder. So that's our fiduciary obligation. But in my mind that who better can vote in the best interest of the shareholder than the shareholder. And at the time we brought this to our attorneys and they were really opposed to it. They're like, nobody else is doing this. And we would argue that the shareholders aren't smart. They're dumb. You're, you're the expert. You should be voting these shares. It's, it's irresponsible for you to push
That burden onto the shareholder. Um, so we had to back off just because I didn't want to fight the SEC. Uh, our attorneys thought it was going to red flag the SEC, us being the first to do it. So then what we did is we rolled out a proxy policy that said we would take into consideration as one of our factors, um, the shareholders viewpoints. And so we set up a process on our website where they could come in and, um, and, um, and actually, uh, vote their shares or, um, some of them, they don't, wouldn't have to vote all of them because most people don't want to look into 500 companies, but they're going to have a good opinion on, Elon Musk's pay package, for Tesla, some of
These are hot, hot, hot voting topics that do come up. So the, the struggle with voting your shares is most people don't, and they don't really care to be honest, but even the ones that do, it's about a, a 10 to 15% demographic that wants to vote their shares. It's just very difficult, uh, to do it. Um, I will say this in the last year and a half, all the majors have rolled out programs that have, um, some sort of voter input. So we pioneered it because we got a, an article on the New York, um, yeah, the New York times, um, several years back before it had been done. And, um, and now I wish I would have just rolled out the full pass through voter and just taken, taken on the industry
Right off the bat. Cause I think we would have got more traction with it. But, um, where it sets now is, uh, we have a, uh, a third party iconic is a company that actually helps us with, uh, uh, they aggregate the votes from our shareholders, the ones who will sign up. And, um, part of our push, we haven't marketed index yet, but we are, um, ready to turn the lights on and try to make index a household name as a founder run, um, shareholder conscious, when Bogle died, I don't know, who took over for in his footsteps of being a champion of investor rights. But, um, we certainly want to try to do our part with that. And so, um, we are going to start pushing that
Because right now we don't even have that much traction on people paying, um, much interest on it yet, but we're going to feature it. We're going to roll out an app that's going to make it easier. If you can make it fun and interesting and we can push you notifications on when important, um, votes are happening in maybe your hot button areas. Cause you can, put in the app, I'd be interested in these topics that we can push out to you in an email or a text saying, Hey, a vote's coming up. If you want to weigh in a log into the app and that's where we're
Going to go with that. Very cool. Very cool. I'm going to keep my eyeballs on that as, as you start to roll that out. Um, definitely a differentiated product and something, much needed is, is people want more, choice to control over their money and their investments. So, um, very cool product. So Mike, I really appreciate you spending some time with me today before I let you go, where can people learn more about cyber Hornet, your ETFs. And I, as you mentioned before, it's like you're, uh, you're going to be starting some sort of YouTube channel and educational series.
So please give us everything. Yeah. Yeah. Uh, cyber Hornets.com is where to go. And then, uh, if you type in cyber Hornets, uh, anywhere that we're the only ones showing up at the moment. So, uh, Instagram and the rest of them. So, um, our, we, we did just start a crypto talk with Mike and, uh, we'll also have a cyber Hornet, uh, more of a company channel for advisors. Um, but the crypto talk with Mike will be more focused on the retail side. So, uh, stay tuned for that. And, uh, we hope for, for big things in the next 36 months. Awesome. Well, again,
Thanks Mike for being here with me today. Thank you, Brad. Appreciate being on your show.
Бывает We'll see you next time.
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