I don't understand the point about physical cash in the quote. Both bank account credit and physical cash are fiat, and also treated as equivalent, therefore something that can be inflated and devalue...
As we say, furthermore, the other version of the argument requires hyperbitcoinization, an implausible scenario that in its more likely forms actually involves *enhanced* rather than limited state fiscal capacity (through early acquisitions of bitcoin). If states work to dramatically accelerate bitcoin appreciation, it will likely be to their benefit, not their harm.