Your strategy is one guaranteed to ruin your country.
This opinion requires a great deal of justification.
The book American Carnage is a fantastic deep dive on this (and extremely fair and even-handed, despite the bombastic title).
If "that" is the cause-effect relationship claimed above, no we are not "seeing" this right now. There is a huge difference between events and the narratives, accurate or otherwise, which some people use to explain those events. The system under consideration is insanely complex, with an immense list of causal factors at play. To me, in my opinion, it's obvious that the causal relationship described above is at best a tiny contributor that is, itself, dependent on other factors also being present. At worst, it's completely wrong and a distraction from understanding the real causes.
Now there may be a point of diminishing returns. As in 5 parties are as good as 10, are as good as 15. But that's an academic question, and we're not even at 5 parties yet.
On the other end, maybe 500 parties is self defeating, as you say. But we're nowhere near that either.
On the other hand, too many parties becomes unwieldy, and I'd argue that 10 is already going to be too many in practice.
Historical experience in the early 20th century led many countries to develop minimum bars, e.g. parties with fewer than 5% of the vote not getting any seats in parliament.
There is a comfort that comes from the instability of party switches. The parties don't cooperate, which means less can get done. Anything that puts anyone in an area where one of the gangs of politicians can actually do something, is to be avoided. We've learned that the hard way in Wisconsin.
As a general rule, it's always best to split up your government as much as you can.