[blusterXY]

> Banks create money out of thin air.

The ability of banks to leverage deposits into fractional debt is restricted by the size of their deposit base and the need for fiat assets to earn competitive rates of return. This is not a "one way street".

Once people start shifting capital to crypto, banks will sell assets to cover withdrawals, and the cycle to which you refer starts to spin in reverse as the worsening terms-of-trade for fiat/crypto exchanges triggers a fall in the real value of assets in terms of fiat. In short, we are going to get more inflation as crypto spreads because there is less stuff being sold for fiat and more stuff being sold for crypto or held because people don't want to trade it for something likely to lose value.

At that point banks will have to raise interest rates to ensure they are not lending at a loss. Higher rates will weaken borrowing and push more borrowers into bankruptcy, at which point your expansionary cycle reverses until enough loans are written-off and the debt overhang is reduced and/or inflation eats up the implicit increase in the money supply relative to actual underlying GDP.