Cash. The $10K law is for literal cash. An envelope of $100 bills, or bag of smaller denominations. Not movements of money, the kind that occur all the time. I am retired, and make regular transfers of over $10K. Direct transfers from broker (IRA/401(k)) to my local bank. No red flags.
That said, try your plan for one small cycle and let us know how it goes. The prepaid cards come with a fee, typically $5, which is 1% of the $500 gift card. But, the next step, getting the money back off, is also not frictionless. You can't easily just turn the card back to cash to deposit.
You are on the right track to maximize card points, however. If/when you see a deal which offers a bonus or large cash back on Pharmacy or Grocery stores, this may be the path to take. But you'll be left with a stack of these cards to use for your natural purchases for the next months.
(Anecdotally, some time ago, a bank offered a credit card with a 90 day period of "10% cash back on grocery store/pharmacy purchases". I purchased $50K worth of gift cards, 100 cards with a value of $500 each, and got $5000 cash back for doing so. There was a $5 fee per card, for a total $500 cost of the transaction.
We then used the cards over about 18 months for normal spending. By the time I exceeded $30K, the bank pulled the offer. No new customers would get this deal. But still honored their 90 days with me.)