Er... how, exactly, would the supply rise? Are you actually claiming that people would send new supplies of USD into an exchange that had just had its bank accounts seized and frozen customer balances? This makes no sense.
No, it doesn't, but then that's not what I wrote. The concept is so obvious and simple that I'm struggling to explain it in easier terms, but I'll try. The absolute amount of fiat owners is not relevant for the price setting in the supply and demand theory, only the relative amount of fiat owners who want to pay at least a certain price, compared to the relative amount of bitcoin owners wanting to sell at a certain price.