I don’t believe that a physical existence of bitcoin is necessary. I mean after all the whole concept of the currency is that is it completely online and decentralized.
But you can't deny that in certain cases and under specific conditions (for example, when there is no Internet access in some hole), paper bitcoins could be quite useful - if we assume there is no more fiat sticking around. In fact, we don't even need physical bitcoins as such (though they would be perfectly legit) since depositary notes of some Bitcoin bank would do just fine, especially if you can at any time check their validity using a block explorer, that a certain note is actually linked to a certain amount of bitcoins on the blockchain. If I recall correctly, some company had already tried something like that in the past
It was BitNotes, if I'm not mistaken