donors don't directly get to decide who they reward.
Almost totally false... it's only indirect in the same way that people who watch TV aren't directly paying for the content they view. The upvote structure organically encourages what content is desired. If a whale likes content about gardening and upvotes it, you can damn well bet that within a weeks worth of time, we're going to have a lot of selfie photos of people planting their first tomatoes.
If not enough new investors enter the system to buy the continuously generated tokens from people trying to cash out, the market price of the tokens plummets,
emphasis mine... it will not plummet. Were it not for the power up mechanism, I would agree with you. Since it exists and we can know at any point in time precisely how much steem will be powered down in little more than one weeks time, we can know what's coming. Accepting your premise, we're in a constant race condition to the bottom... unless there are new market entrants.
And with all that, the pyramid falls down.
That doesn't happen overnight.
It's not at all that different from the ending of a traditional Ponzi / pyramid scheme.
For the reasons above, I think this is a simplification at best.
Yeah, TV is an ok analogy I guess. It's indirect compared to directly purchasing a show on the creator's website. It's indirect compared to other ways of micropayment, be it direct donation to the author, flattr, patreon, whatever.
What's even worse is, investors are not informed upfront that, in fact, a portion of their investment is going to be donated to content creators, and they will only get that money back if more new investors join the platform.
About your second point, I agree, the pyramid may fall in slow motion. It largely depends on how those at the top of the pyramid decide to cash out - as they hold the vast majority of tokens. They may slowly sell over the years, or power down and accumulate the tokens for a while then suddenly dump to the market.
Either way, we're arguing time frames here - the mechanics stay the same.