It will not have an effect on Bitcoins' supply because the supply of Bitcoins will just be the same. Imagine a gold being converted to fiat. The gold supply is still there and in fact remains the same. Just that you have fiat in exchange for value of the gold you once held.

But when it comes to demand, there MAY be changes ONLY if there will be decrease in demand. Meaning, when nobody would want to hold Bitcoins anymore. Nonetheless, this will only have little effect because the growth of Bitcoins have been impressive the past few years.