“Once crypto banks obtain deposits from investors, these firms borrow, lend, and trade with themselves. They do not interact with firms connected to the real economy.”

That's the reality. The only reason prices went up is because the "whales" build up this domino bonanza sucking in real people's money in the process.

Since no sane person would invest in crypto in the short to medium term, I don't see how the industry will recover from that.

Personally, I believe the only way is to "earn" for doing stuff on the internet. Yet, the experience is that earning in a highly volatile currency is not the incentive many people think it is.