Why is the paint on my leather cover cracking after a few weeks?

You're right about the cause, and unfortunately thinning more won't fix it. Acrylic sets into a fairly rigid film once cured, and a spine fold on a book-style cover flexes through a tight radius every single open. No amount of water in the mix changes that. The flat areas look fine because they barely move, which is exactly why the crack line follows the fold only.

I've had this happen on painted journal covers. What saved mine was switching to a flexible leather paint for the affected zone and doing many thin coats instead of one heavier pass. Angelus is the usual choice and they sell a dedicated flex additive you mix in, which helps a lot on areas that bend constantly. Edge kote and edge paint are actually formulated to stay flexible over a tight radius, so a thin line of dark edge paint down the spine fold can work if you're okay with it reading as a deliberate stripe rather than part of the scene. On a dark forest scene that could blend in nicely. For prep, don't put neatsfoot oil under paint. Oil soaks into the fibers and anything you paint on top tends to sit oddly and can peel later. If you do a spot repair, wipe the fold area down with a deglazer or oxalic acid-free leather prep first so you're working on clean leather, then build the new paint up in thin layers. Let each coat dry properly before the next.

One trick that genuinely helps: gently flex the cover open and closed a few times while each coat is curing, not fully dried. Working the leather slightly as the paint sets keeps the film from locking into one rigid shape. It's the same idea as flexing new paint on a jacket elbow.

Since the stitching is done and the rest of the scene is intact, I wouldn't strip anything. Sand the cracked area very lightly with fine grit to knock down the flakes, clean it, and repaint just that band with the flexible stuff. It'll be a bit of a blend job, but your wife touching up her own scene there will probably look better than anything you could do.

Same thing happened to a wallet I painted for my brother, cracks showed up right where the leather folds over the cards. I didn't repaint, I just worked some leather balm into the fold here and there and honestly the cracks kind of settled down once the paint got worn in. Not a fix, more of a 'it stops getting worse' thing. One thing I'd add, if your wife does touch up that band herself, have her paint it with the cover propped half open, not lying flat. That way the paint dries in the shape it actually lives in instead of flat, and it cracks way less when it gets flexed again.

Not sold on the flex-it-while-it-cures trick from the first reply. Tried that on a painted belt once and all I got was a slightly wrinkled film, the crack still turned up after a week of daily wear. The paint doesn't care what shape it cured in if the bend is tighter than the film can stretch. What actually worked for me was keeping paint off the tightest part of the fold entirely, leaving a finger width of bare leather down the spine and letting the design fade out before it got there. Not what anyone wants to hear with a finished scene, but paint on a spine fold is a when, not an if.