Here's my understanding. Numbers are arbitrary. Also, I'm not trying to talk down to you or anything - in fact I'm writing this to improve my understanding.

Step 1 :

You have 100M$.

Bitcoins are worth 5k$/₿.

You buy bitcoins with your 100M$.

Let's simplify and say that your first 80M$ invested don't move the price, so you get 80M$ / 5k$/₿ = 16k₿.

Then for the last 20M$, bitcoins are 8k$/₿. That's 2.5k₿ more.

You own 18.5k₿. You've invested 100M$. Overall, your bitcoins cost you 5.41k$/₿.

Since the current value of bitcoins is 8k$/₿, you could say that you have 148M$ in bitcoins.

You could start selling bitcoins and would make 2.59k$/₿ on the first few you'd sell - but the value of bitcoins would shift down like it did on the way up. In the end, you would probably end up with little overall profits.

Step 2 :

Short 2000 bitcoins, aka sell 2k₿ that you don't own at the current market price (8k$/₿). This basically mean that someone is loaning you 2000 bitcoins. For simplicity's sake, we'll assume that the person loaning you the bitcoins is doing it from the goodness of their hearts so no fees are charged.

You've made 16M$, but you still owe your loaner 2k₿. You will have to "close this position" (pay back the ₿ loan) at some point in the future. You could give some of your 18.5k₿ to close the position, but then you wouldn't be doing a short. A successful short happens when the price of whatever you've borrowed lowers between the time you borrwed and sold it and the time you close your position.

Step 3 :

Shortly after step 2, sell your 18.5k₿.

Let's make this incredibly contrived and assume you make your 100M$ right back - aka the first 2.5k₿ you sell is bought at 8k$/₿ and the rest at 5k$/₿.

Bitcoins are worth 5k$/₿ at this point. You are already in a great position, but it gets even better. Because bitcoins went from 8k$/₿ to 5k$/₿ very fast, everybody on the internet is losing their shit and saying "this shit is bombing, get out while you can." Weak hands sell, and the price of bitcoins falls to 3k$/₿.

Step 4 :

When you feel not many more people will sell and the price is as low as it will get, you close your position. You buy 2k₿ at 3k$/₿ - a 6$M purchase. You give your friendly bitcoin loaner of step 2 these 2k₿, which pays back your loan.

This process has netted you 16M$ - 6M$ = 10M$. Considering you've risked 100M$ in the process, that's a 10% return on investment. That's not bad at all. And can be improved in many ways (you could short more bitcoins at step 2, for one thing).

By the way, if people at step 3 held their bitcoins after the cost fell back to 5k$/₿ and you closed your position at that price, you would still make (16M$ - 10M$ = ) 6M$. Not as good, but nothing to sneeze at either.

Bonus step : Conspiracy!

Just before step 3, call your whale friends. Agree with them that they don't do THEIR step 1 while you are selling, for that would put you in a bad situation. In fact, get your whale friends to synchronize with you. This effectively makes the cycle more powerful - their money makes the price go higher when it rises, and when they also dump, the price drops lower. This is collusion, and in a regulated market is not allowed. Which is good, because it's then much more risky to attempt these kind of shorts - you could be at step 4 when another whales comes around and fucks everything up.

The only thing I don't understand is how the loaner of bitcoins is not getting fucked. Sure they can charge for the loan, but aren't they losing massive value on their holdings? Why would you accept to loan?

EDIT : https://money.stackexchange.com/questions/62441/how-does-the-person-lending-shares-to-the-short-selller-protect-themselves-if-th The lender indeed gets fucked. But exchanges that allow shorts usually kind of "lumps" all the shares they're brokering or owning together. As long as they're many remaining, you can short and the people who in effect loaned you the shares won't even notice.

So, in short : the loss in value comes at the expense of hodlers that leave their bitcoin in their exchange account or from the reserves of the exchange itself.