Shorting BTC on a BTC exchange involves more counterparty risk than I want to take on. (Folks have asked this before; see here: https://hackertimes.com/item?id=6894594 )
My current best option is hoping that a) the Winklevoss ETF gets approved and b) an option chain develops for it, in which case I will buy puts consistent with my belief that the long-term FMV for the ETF's assets is zero. (Exchange-traded options in the US are guaranteed by the Options Clearinghouse Corporation, which is why -- absent global calamity -- you can be very certain that e.g. puts on Google are worth money even if Google goes out of business or the people who sold you the puts are insolvent when their broker hands them an exercise notice.)
There is theoretically a DRW subsidiary which does over-the-counter options but they have a $25k minimum trade size. It would also require a lot of due diligence for me with regards to counterparty risk; it's not clear whether their options would reliably compel performance or that they would be in a position to backstop the failure of their clients in the event of total systemic collapse of the Bitcoin markets. It's also not clear to what extent that DRW would backstop them if they were insufficiently capitalized. (For an illustration of why this matters, read The Big Short, for the amount of heartburn that various folks betting against the housing market went through when it became obvious that they were entirely right on the merits but that some of their counterparties were almost certainly going to go bankrupt due to how wrong they had been about the housing market.)
(I've spent way too much time thinking about this, since "Bitcoin will eventually fail catastrophically" is the biggest answer to "A belief about the future state of the world which I hold strongly after reflection and which doesn't match the beliefs of some of the smartest people I know", which sets off my "Either I'm wrong or I should be betting against them" antennae.)
If it makes you feel better, Id bet on the future of cryptocurrencies, but against bitcoin in particular.
The bitcoin network decided to strip the VM of features that made it valuable in the future (eg, ability to make transaction claiming represent the solution to a computation) in favor of safety and simplicity now. I don't believe the behavior of the network in resolving blocksize issues indicates the kind of political will needed to fix that.
So my bet is that the next iteration (or two or three) on the ideas behind Etherium will eat their lunch. Because having tokens to reward contract execution or a computation has a fundamental longterm value (and is similar to how real currencies function, in that executing a contract or doing a computation earns you the ability to have that done for you). I don't believe that just securing the ledger has long term potential.
Any self-respecting BTC bear isn't going to short on an unregulated platform run by people heavily invested in BTC being a success and expect to see their margin again or get paid out on their contract if they're right. I mean, it's not as if exchanges have a good track record of not losing/stealing customers' money when BTC is doing well.
You appear to be arguing false causes from which you draw irrelevant conclusions.
Firstly, the reality is that other people (lenders), rather than exchanges, are lending out their money, for a certain amount of interest. Exchanges have nothing to lose. Quite the opposite: they earn regardless of whether longs and shorts are successful or not. Take Poloniex as example: they collect a 15% premium on interest earnings. This is of course next to the premium they collect in the form of regular trading fees.
In nearly all cases this means that lenders don't lose money. Borrowers do because they pay interest. This is why you can only borrow after you allocate collateral, which is used to pay for said interest, and to collect profits, cover losses, and for forced liquidation in the case that the borrower's trades are about to lose more value than is covered by their collateral. This applies to shorts and longs.
The only chance this becomes problematic for an exchange, I think, is when a forced liquidation does not cover all of the losses and some debt stays open. In this case either the lender does not receive the right amount of interest, or, what makes more sense to me, is that the exchange will cover the debt and try to claim it back from the liquidated borrower.
Secondly there are a good number of exchanges that do have very decent track records and aren't as scammy as you claim. There were a few scammers out there, I'll grant you that - companies like Cryptsy and of course MtGox just stole incredible sums of money. And yes, this can happen again with other exchanges. Be that as it may, this still does not have anything to do with the possibility of shorting in particular.
Of course it has nothing to do with shorting in particular, except that shorting (at least until the Winkelvoss ETF gets approved) requires using precisely the same Bitcoin financial ecosystem that people thinking it'll crash are unlikely to have much faith in at all.
What you say of the exchange business model not being exposed to price movements in principle might be true of properly capitalised and regulated exchanges, but its less evidently true of the exchanges that actually exist.
The most recommended place to short Bitcoin is/was Bitfinex...
