It's true that people are incentivized more to keep their Bitcoin over actually spending them, and we're seeing the effects as early as now, even while supply is still rising. There's no way it will work as a replacement to fiat with the way our economy is set up, where growth is driven by debt and spending -- the question is, why would we need Bitcoin to replace fiat in the first place?

Bitcoin was never meant to replace dollars, kill banks, or save economies. It's there so you could have money you could do whatever you want with, whether that's spending, hodling, or anything in between, while fiat can go ahead and do its thing. While Bitcoin absolutely should be viable for daily spending (people who want to go down this route wouldn't care about deflation anyway), it doesn't necessarily have to be used that way.