It is a supply and demand curve. Where they meet is the equilibrium. https://en.wikipedia.org/wiki/Supply_and_demand
Fractional reserve banking doesn't work with Bitcoin, unless you somehow trust a centralized party to always honor your withdrawal, or the coins never leave that internal system. Many exchanges could theoretically be running fractional reserve operations. But they are just risking themselves because once a rumour gets out, a bank run will occur and they will be exposed. Once you withdraw your coins from this trusted system, it is accounted for on the blockchain.
Academic economists like Steve Keen have totally demolished the classic supply/demand curve: https://unlearningeconomics.wordpress.com/2012/06/25/debunki...
Here's a suitably scornful graphical version: https://www.youtube.com/watch?v=Y3wUqcapSU4
Wishful thinking does not count. I know no law of nature nor economics that says that demand of money is stable. And if you allow fractional reserve bitcoin banking without regulation[1], money supply would be completely chaotic.
[1] I guess the question is how would you prohibit fractional reserve bitcoin banking? It's not like there exists any regulatory authority that could do that...