Advisability of using a OneDrive folder mounted on external drive for Time Machine? I want to use a OneDrive folder as the location to which Time Machine backs-up my internal drive. I'm pretty sure that Time Machine can't back-up to a cloud drive that is mounted on the volume that it is backing-up because it creates a loop (that is why I would mount the cloud drive on an external drive that Time Machine is not backing-up).

If my internal drive fails then:  


get a new drive.
do a fresh install of OS X.
attach any external drive.
install OneDrive and mount the OneDrive cloud drive on this external drive.
point Time Machine at the OneDrive folder.
tell Time Machine to restore.
done.


I can rest safely knowing that is how it would work? Or, am I about to make a devastating mistake that leaves me with no Time Machine protection?
Theoretically it should work ok.

Note that you cannot specify a folder as the Time Machine backup destination. You'll need to create a sparse bundle by following these steps, from a MacRumors thread:

In Disk Utility, select File > New Image > Blank Image.

Enter your desired filename and set Where to your OneDrive folder on the external drive. You can choose the size here, too.

Ensure Format is set as OS X Extended (Journaled), and Image Format is "sparse bundle disk image".

Once it's created, unmount the bundle by clicking the Eject button next to it in the list on the left.


  In Finder, double click the sparse bundle image file to mount it, or use the mount command in Terminal.
  
  Now set Time Machine to use this sparse bundle:

sudo tmutil setdestination /Volumes/&lt;path-to-sparse-bundle&gt;

  
  When you start Time Machine, it will create a Backups directory within the sparse bundle for your backups.