I understand where you're coming from, but I also think its something inevitable and not necessarily a reason for K-1's decline.
There are plenty of legit karateka in K-1 Japan ranging from shinkarate types like Noiri, kyokushin types like Komiyama, shotokan types like Yamazaki and even kudo guys like Akimoto. Despite their arsenal of flashy kicks though (well, besides Akimoto), they all have a working knowledge of boxing and you don't see anyone with no face punching experience going in there like Filho and Hug looking for the ichigeki. When a sport matures, you just can't be competitive when you have gaping holes in the fundamentals. Just look at MMA. That was supposed to be a no bars hold free for all, yet now everyone seems to coalesce to the same generic boxer-wrestler or muay thai-jiu-jitsu archetype. I would also note that this general convergence of styles hasn't really hurt the UFC's popularity (though I do miss the guys fighting K-1 in gis).
The moment you set a ruleset and popularize it, you're going to have a generation of fighters optimized for it. Can't be stopped.
Yeah I agree with you a 100% it is inevitable - it's happened with every combat sport.
The reason I think it is partially the reason for K-1's decline is because what drew the crowds initially besides great martial talent was that K-1 was an avenue for all standup styles to compete to see who is the best. It wasn't begun with the purpose of starting a kickboxing organization - more so to provide a fair ground for all standup styles to compete in as well as allow professionals in the Seidokaikan organisation like Hug, M.Thompson, Taiei Kin, Sataake, Greco etc to make a living as professionals - as well as some Kyokushin fighters that wanted to compete professionally also. Seido started with the knockdown before they eventually moved into the kickboxing area - however unlike last time they stuck with the kickboxing. They were trying to find the best avenue to do these style vs style fights and changed readily when they had to.
People wanted to see who the best standup fighter was - and because you had an openweight open style format you had a bigger audience pool or could cast a wider net than you would otherwise have been able to if it was just kickboxers competing - you had the karate crowd, mt crowd, kickboxing crowd, taekwondo crowd etc etc. I agree to some degree it was also a passing Japanese fad - it was new exciting and bigger than life and to some degree was only a matter of time before the fad passed - pretty much the same happened with MMA too after the pride scandal.
I mean kickboxing already existed in Japan before K-1 came along but it wasn't particularly that popular - so what made K-1 different? There are many variables involved but I think the style vs style one is a significant one.
People want to see standup fighters in other styles compete against each other to see what the best style/fighter is. I think people still want to see that - this is what also draws the casual fans because even they want to see it - they might not particularly like boxing, kickboxing or mt but a style vs style fight draws them in. It's why there was so much hype with McGregor vs Mayweather more hype than you'd find in one singular sport - and more audience viewership.
It's also very easy to empirically prove - go to any video sharing site like youtube and the most viewed videos are those where there are two fighters of different styles for that type of video search. Like if we typed in Muay Thai or even Kyokushin Karate for example - the videos with the most views are the this vs this style. Most of these videos are style vs style fights or 90s K-1 or Seido.
Regardless of my own views of karateka competing in kickboxing (many who I feel aren't really karate but more kickboxing) - shinkarate is a great example because even though they are karate they compete under kickboxing rules - it's like if I learned a karate style and competed in kickboxing from the beginning, over time my skillset will optimize itself for kickboxing to the detriment of the karate I'm learning - how much of the karate I learn becomes applicable to kickboxing - how much of it remains over time - how much of it is just pure kickboxing? Can you call it Karate if you just punch/kick?
There is a reason why karate is all about the ichigeki because traditional Karate did not have the combinations of kickboxing. Traditional karate is very much like point karate - an over emphasis on pot shotting or counter/strike because chains combinations go out of the window in a bareknuckle scenario because of the likelihood of breaking your hand. Karate out of all the arts has stayed true to the bareknuckle aspect it originally had. Kyokushin is in that weird zone because even though it is karate - it's sparring format is an entirely different sport (to the detriment of the Karate in the style imo - hence why I left Kyokushin & started kudo a year ago).
I'd add that the generic MMA style fighter doesn't hold true either - everyone has specialisms in different areas to the point that the casual fan can distinguish them apart (like a style vs style fight) - nearly every MMA fight looks like a style vs style fight because it's so open-ended in a way kickboxing is not. The problem with kickboxing is it's harder for the casual fan to distinguish the style of either fighter because it's kickboxing (a singular style) - so what they see are two relatively similar kickboxers or two punch/kick fighters fighting one another whereas in MMA two fighters that are different from one another - at least visually. It was easier for fans to see style vs style in the beginning of K1 but as the sport evolved it become much harder to.
I'm talking here in general terms because there are a few style vs style fights in kickboxing but they aren't there to the degree in early K-1 which is my point (the exception being wlf).
Sorry for the late reply & long ass post.