Of course banks could pretend you have BTC that they themselves don't own. All this does is create a naked short position in BTC for the bank. They're not creat

Of course banks could pretend you have BTC that they themselves don't own. All this does is create a naked short position in BTC for the bank. They're not creating or inflating BTC. This isn't even close to how your example of $'s being lent out works. That's ignoring the fact that you couldn't use any of the "BTC" the bank gave you (outside of their own centralized network) if they don't own any of it in an actual wallet. Your understanding of BTC and how a bank works is extremely weak.