That could make it worse. What you’ve described are really just derivatives, which brought down the economy in 2008. An infinite number of bets on a finite amount of resources.

Think about it like going to the horse racetrack. Nothing stopping anyone from betting $40 billion on a few horses. Win or lose, a ton of instability will occur once they either need to come up with $40 billion to cover their losses or have someone pay them $40 billion for their winnings.

Assuming someone shorts BTC and it crashes, how are they going to collect when the other parties are likely heavily invested in BTC to begin with?

The people who went long get liquidated into USD by the exchange, and you ACH that USD into whatever account you want to.

The parent comment suggests becoming a billionaire through a short. The people who bet long are likely leveraged to some extent, and if they have enough of a BTC portfolio to allow a short against them to make you a billionaire it's not unlikely that they just won't have the money to cover the bet.

We saw this prior to the Great Recession, and in the 1929 crash too. I'm ignoring the potential for a bank run to complicate matters, just sticking with counterparty risk which is easy to model.