The ability to compute any computable function between tokens given an ability to loop an arbitrary number of times is a nice theoretical point, sure, but ultimately if people are still using single digit hard cutoffs on the number of loops, I'm not sure it's all that important.
So, I agree it's right to say that arbitrary length dynamic looping could open the door to making monitoring very hard indeed, by extending hidden states further and further. But I would speculate that if it actually worked better than extending the sequence with CoT tokens, we'd already be seeing it in strong open weight models. It's a fairly obvious thing to try. And we're not seeing it, AFAIK. So I do wonder whether it's something we really need to worry about in practice, compared to all the other things we have to worry about.