You can still transact with Bitcoin using your own wallets against other exchanges/vaults. That's the entire point, Coinbase, like a (lower case "b") doesn't control the supply of Bitcoin, any more than precious metals bullions control the supply of gold despite their issuance of "gold certificates". Like any (lower case "b") bank, Coinbase can engage in bad behavior, and users are placing their trust in Coinbase to not do that. But those users aren't placing their trust in Coinbase to drive the monetary policy of Bitcoin, in the same way that the gold hoarder placing their gold bars in a Swiss vault doesn't really have to worry about the operator of the vault creating gold out of thin air. That fundamental fact drives the collective belief in the value of gold; as well as Bitcoin.
> * the new owners of those 100 bitcoins can roll down to exchange X and deposit them and accept 100 claims against exchange X in return
You can't deposit that purchased BTC at another exchange unless you cash out of Coinbase, because you don't have access to the private key, Coinbase does.
Not going to continue this discussion any further because you seem less interested in having a polite conversation, and this is starting to get destructive.
* accept 100 bitcoins for deposit, giving their previous owners "100 claims against exchange X" in return
* sell those 100 bitcoins
* the new owners of those 100 bitcoins can roll down to exchange X and deposit them and accept 100 claims against exchange X in return
* and the exchange can sell those 100 bitcoins once again
Now we've got 100 bitcoins out in the world and 200 claims against exchange X, and each of these 300 items functions identically. They're exposed to all risk of gain or loss on the market, they can be traded, sold, used to purchase stuff... with the only limitation being that not every claim against exchange X can be immediately redeemed. But as long as not every person tries to redeem their claim at the same time, there are no problems.
Exchange X has permanently [until they exit the market] increased the usable supply of bitcoins. Nothing prevents an exchange from having more than 21 million bitcoins on deposit. With large enough exchanges, the banked, usable balance of bitcoins could be 100 million coins. 100 trillion. There is no limit.