You can't sell a virtual Steem on the market (at least not as STEEM) so I don't consider it realized inflation, but this is getting into pure semantics.
The potential virtual supply is ultimately unlimited, because it is increased every time a conversion is completed. The 10% ratio which triggers a haircut limit only acts to slow down such a potential expansion of supply to ultimately any amount. All you have to do is split the HBD into multiple convert transactions and you would easily, vastly exceed the 10% limit (assuming you're already at it). The Koreans dumping on UpBit did not increase the virtual supply, rather they made it attractive to people who used the convert contract on a large scale, and that increased the supply of Hive, increasing the "potential virtual hive" by the 10% rule.
In practical terms the potential virtual supply is not unlimited. The limit is the HBD supply, if all of it is converted there is no way to increase the virtual supply and therefore the current supply via that method.
Of course the dumping on Upbit did not increase the supply but rather it replicated a situation where the debt ratio exceeds the 10% limit and brakes the peg making it profitable to play the arbitrage game of buying HBD with the intent to convert.
I certainly do not disagree with any of your points. It is as clear as day that the existance of HBD introduces a volatile factor that determines the evolution of the HIVE supply outside of what is programatically set to happen.