BTC in particular has long transaction verification times that are growing longer.

>Can you give an example where its capped supply would cause an issue?

To be useful as a day-to-day currency there needs to be a balance between inflation and value.

Currency works best when people are not encouraged to hoard it, because then the economic incentive of using money is there.

If I hold on to a dollar, in <30 years it will have about half that spending power at current inflationary momentum. Thus, it is more prudent to spend the currency on assets or exchange them for necessities. If the currency itself increases in value as time goes on, the incentive to exchange it for goods and services is actually not there.

Currency comes from the word current meaning flow. Hoarding something is the opposite of letting things flow.

>BTC is infinitely divisible, and so can be used as currency.

BTC is not "infinitely divisible." There is a smallest unit of BTC known as a satoshi, and transaction fees (the amount you must include to incentivize miners to actually put your transaction into a block) is already greater than the amount of BTC stored in some addresses.

>Money backed by entities are liabilities, which is a bug and not a feature of fiat money.

It may be the case that there are unsavory entities between the creative asset and the actual printed bill, but currency is at its basis rooted in the creative yield of branch or brain.