I think the model is broken. And it is going to drive the price of bitcoin sky high.
The reason is the only way retail and institutional investors can get exposure to Bitcoin is through futures. So futures are being used as a substitute for an ETF. Which is going to blow the price of futures sky high as people FOMO.
Which means a roaring arbitrage trade will develop with the exchanges. But the cost of funds of being a shorter will spiral out of control due to constant margin calls on the shorts who will have to pour in more fiat. Which will restrict supply, driving the cost higher. So we should expect an ever increasing divergence between the future price and the exchange price.
Every long trade needs a short counterparty. I agree this will incentivize arbitrage, but as long as the available price of the underlying is less than the price of the active futures, then there should be someone willing and able to fill that gap.
I think?
But if you are short, and the price goes up, you will have to keep topping up your margin. Are you prepared to top up a $16k short with $20k margin? Just trying to figure this out.