I think that it (Steem) started to work for a while when we were in the bull market

Well, probably the best form of promotion and marketing is a rising price and the worst (pretty much regardless of whatever else is being done) is a falling price. That's could be considered crass, I suppose, but it is the harsh reality and a good reason to pay close attention to supply and demand and be very suspicious of reward payouts which don't pay off.

The more hands who hold it, the more possibility that it will hold value and be seen as an exchange of value.

I would tend to agree. Translated into prudent use of rewards, this argues against milking of a large amount by an individual or a small group, and support for smaller rewards distributed more widely.

When the former is seen happening, the best response for stakeholders who want to see wider distribution and (as you explain it, "more possibility to hold value") is to downvote. Or pivot toward reduced inflation to the extent it is widespread and persistent.

I would actually say that "distribution" is a clearly form of marketing (which is why we see not only mining and rewards but giveaways, airdrops, etc.). Just like everything else, rewards can be used effectively or ineffectively for distribution. When used ineffectively, the result is the value hurt by inflation and not getting some offsetting benefit.

So, yeah, let's use rewards for distribution, but that, like everything else, means doing so effectively.

and we do have the tools to allocate it

Possibly, but statements like this are quite vague. In some abstract theoretical sense "we have the tools" but if real people in a real world environment do not behave in a manner which makes the tools effective, then we don't actually have the right tools, or the right tools might not even exist.