Saying it undermines demand for Pokemon is like saying fast food establishments hurt fine dining or the NFL somehow undermines soccer from being more popular in America or to dumb it down even a little more...the existence of candy undermines the demand for chicken.. I don't buy that honestly and while I might be wrong, it doesn't really make sense from an economic perspective.
To be blunt, yes. You are wrong. This is material covered in intro to macroeconomics courses. Demand for one good reduces the demand for possible substitute goods, even if the substitute good does not completely fill every need of the original good. There are only so many sports fans, and if they're caring about and spending money on the NFL, they aren't caring about soccer (and require extra effort to change existing/entrenched preference). There's only so much time and money each household spends on food, and if they're spending that time at a fast food restaurant, they're not spending it at a fine dining establishment. Yes, some substitute goods are stronger than others and have stronger effects, and (the NFL) isn't a perfect substitute for (the MLS), but their demands are still inversely correlated.
As a
whole, Pokemon lacks many strong/viable substitutes, which is a huge reason why it's so popular. But for
specific aspects, like PVP and especially single-player difficulty, the substitutes are less weak. This partially explains why GameFreak puts less time and effort into these features than some would like, especially single-player difficulty, where it is competed against more strongly. Note that SWSH's most obvious focus of effort is where Pokemon lacks as many substitutes: the individual Pokemon themselves.
The Internet is literally the REASON why shiny hunting and stuff like that has become a fad
Shiny hunting is not a kid's fad, it's consistently disproportionately made up of older and more experienced fans. What I and others are looking at is kids.
as well as why people care to do stuff like Nuzlockes
Yes, Nuzlockes are an exception where a Pokemon difficulty challenge is still popular among kids. However, it wasn't made by Nintendo itself, which makes things more complicated if
Nintendo would try to capture such a community with an in-game feature. This complication is another point against the viability of putting effort into the Frontier. Also, Nuzlockes and other exceptions aren't strong enough to fully compensate for the single-player accomplishment that Pokemon lost in the Internet transition (especially discovery, bragging ability to friends, and perception of difficulty, all of which are harmed by online walkthroughs).
I mean, just looking at one of the tier lists already present on this website or a YouTube video is all a kid needs to do to get through Pokemon if they've never played it before, and these happen to be pretty fun as well as informative. Pokemon isn't even difficult unless you Nuzlocke it or something (and even then it's easy to win if you take the time to heal Pokemon instead of risking them like I have a bad tendency to do and/or use X-Item spam to ensure you can power through major matchups as I did against even Red), it's not Sekiro or Dark Souls by any means.
Again, as far as single-player accomplishment specifically, Pokemon's problem isn't difficulty, but a difficulty-to-burned-time ratio that is too
low. Other games tend to have higher difficulty accomplishment, less time needed to burn in gameplay to reach the same level of accomplishment, or both, giving them better accomplishment-to-time ratios. The Internet has made more kids aware of these other games with better ratios, giving Pokemon more competition in this area.