Hi @mattclarke
I'm not a trader on Wall Street but I understand the logic behind it. What I would do is 'short' a massive amount of theoretical bitcoin knowing it would cause a panic and price drop in the REAL bitcoin market. Then, I could enter into the market (or another firm I've buddied with) and BTFD. The price would eventually correct (probably upwards) and bingo! Mass profit.
Here is a quote from another link (sorry to share links but better than you taking my word for it):
The most outspoken critics of naked shorting say it remains a rampant practice among a group of nefarious short-sellers and brokers.
https://www.thestreet.com/story/10292209/1/ask-thestreet-naked-shorts.html
I like bitcoin the way it is. No market rigging games (except for perhaps some exchanges). You can only sell or buy bitcoin that actually exists. It's called the free market.
But shorting is still a contract. (to provide n of A on a given date, in exchange for n of B right now) Who's the other party?
Or is that where the 'naked' bit comes in?