My problem with that argument is that it's like a yogi berrism: "no one wants that anymore: it's too valuable".
To the extent that a currency becomes unusable in trade (perhaps as you say too illiquid due to hoarding), then that bids down its value, thus counteracting whatever problems arise from having excess value.
Generally speaking, arguments that it will fail because "deflationary currencies fail" are saying that it will be worth so much that it will be worthless. Even in the often-cited examples of deflationary currencies causing problems, the currency itself did fine -- people were still willing to "buy" it on favorable terms; it's just that the associated economy did poorly.
To the extent that a currency becomes unusable in trade (perhaps as you say too illiquid due to hoarding), then that bids down its value, thus counteracting whatever problems arise from having excess value.
Generally speaking, arguments that it will fail because "deflationary currencies fail" are saying that it will be worth so much that it will be worthless. Even in the often-cited examples of deflationary currencies causing problems, the currency itself did fine -- people were still willing to "buy" it on favorable terms; it's just that the associated economy did poorly.