There will be a fixed number if Bitcoins, and people, because of human error, will accidentally lose Bitcoins every now and then.
This must mean that Bitcoin will eventually seize to exist? Or at least shrink to minimal amounts, when it shrinks to a certain level, it will no longer be useful.
Is this correct?
You are partially correct. If people continue to die with their private wallet sees and password, the amount of Bitcoin actually in use will keep on decreasing with time.
with diminishing supply, of course, prices will soar up. but of course if later it is accepted by all countries, of course there will be policies to safeguard development of bitcoin
It`s correct that less bitcoins in circulations is actually a good thing for the people who have some bitcoins, less supply and high demand will push the price up. What I don`t understand is what countries can do about bitcoin? It`s not up to them, everything depends from miners and what they agree to do with chain. You need to learn a lot about bitcoins, bitcoin forks, and who have a vote on the network, countries can just watch if they don`t have some hash power under their control. Bitcoin will not die, this is just some not so logical thought in op`s mind, don`t spread spam and mix things in your head, inform yourself about bitcoin before making this kind of statements.