Starspirit, maybe I'm not following what you mean in everything you said, but as far as I can tell, none of the chains of events you envision hurt bitAsset holders other than under-collateralization which is discussed in the paper.
BTW your above explanation for why shortselling isn't bullish makes no sense at all. You say if someone sells some stake but uses remaining stake to short bitUSD it isn't bullish on the direction of BTS vs the bitassets as I stated in my paper. But no one would do that unless they thought BTS would go up in value relative to bitUSD so it's still bullish. This just describes someone who is bullish but also needs money for something else; it also isn't "arbitrage".
My original point was that a trader taking a short position may not be bullishly motivated in taking it, if they are hedging their position as one leg of a trade solely to take advantage of a bitAsset premium. The fact as to whether they hold any stake beforehand is irrelevant to their motivation behind the new trade - they have not adopted a more bullish stance. They are not seeking to increase BTS exposure, or having any net impact on the BTS price. Its further possible they may only own some BTS as inventory for this sole purpose rather than actually having a bullish outlook. I am still agreeing with you that the (naked) short position is a "bullish position" - but that's a quality of the instrument not necessarily the trader. (You're correct its not an arbitrage, but its the least-risk implementation to take advantage of the bitAsset premium).
Having said all that, this particular debate possibly seems out of proportion with your original intent.
I admit I never would have anticipated the level of controversy and analysis brought on by this statement:
"Short sellers are typically bullish on the direction of BTS vs. the market pegged asset."
It still seems innocuous to me and accurate but I can accept that not everyone will be happy with my writing.
Feel free to rewrite whatever you wish.
I guess my difficulty is I'm not seeing something that falls outside the categories of risk for bitAsset holders that I discussed and I don't want to add too many hypotheticals to the paper that might cause more confusion. If there is something you think should be added I would just want it to be as short and clearly articulated as possible, keeping in mind it isn't an investment prospectus/ BTS trading guide, it's geared to bitAsset holders.
You might even consider organizing your ideas into a trading guide for BTS/shortselling or a group of recommendations you favor.