Bitcoin is still deflationary, which makes it unusable as money. Inflationary currencies like USD incentivize people to spend and invest. Deflationary currencies incentivize people to hoard.
>You could then still increase the virtual money supply through fractional reserve banking
You can't do fractional reserve banking on-chain as far as I know so that would mean having your money managed by 3rd party banks who would take ownership of your coins, pool them with other people's coins and manage them for you. So... Back to the start?
Furthermore I don't think it solves the problem of deflation, even with a fractional reserve the bank has no incentive to invest the money if the expected return are less than what it would end up with by not doing anything at all (and therefore not taking any risks either). If you have inflation of, say, 2% then any investment expected to create value or even lose less than 2% is a good one. If you have deflation of 2% then an investment that managed to generate 1% of additional value over your investment actually made you lose money because you'd have been better off not doing anything.
Therefore deflation will make it a lot harder to loan money, fractional reserve or not. Interest rates will be a lot higher to make up for it. The poor will pay the price for being poor, the rich will reap the reward for being rich.
>“investing” is a lot more like hoarding than it is spending…
Depends what you invest into I suppose, if you "invest" in gold bullions then you're right, if you're investing in a startup or loaning money to people buying houses then you're powering the economy.