That's because fiat sucks and Bitcoin doesn't.

Since Bitcoin lacks this important property of sucking, it can never replace fiat, because it can't fulfill fiat's best use case, which is as a short. It's just not fit for the purpose.

Fiat is issued as debt and more fiat (i.e. debt) needs to be issued to pay off old debt, otherwise the world would default. This never-ending spigot funds unprofitable businesses and projects that get access to fiat loans. Bitcoin will never do that.

People want to borrow fiat to benefit from the Cantillon effect. Once they've borrowed it, they dump it for something that sucks less. That "something" doesn't have to not suck; it just needs to suck less, which pretty much everything does. It's a very profitable trade that those who benefit from it want to keep in perpetuity.

This fiat short interest, i.e. people's desire to own debt denominated in it, Bitcoin will hardly attract, because it's not desirable to owe bitcoin to someone. We want positive bitcoin balances, not negative ones.

This is not to say fiat will never die. It just won't be replaced. Just like smallpox, it got eradicated and hasn't been replaced.