You can freely trade Bitcoin for fiat and vice versa
So why does it not destroy fiat?
You can freely trade bonds for fiat and vice versa. You can do the same with stocks, options, Dali’s paintings and whatever else. You answered this question yourself: Bitcoin is not a currency; it’s a speculative/investment/hedging asset. The fact that someone called it a cruptoCURRENCY doesn’t make it such.
Maybe, exactly because of the extension of Gresham’s Law, that bad money drives out good money from circulation? It's ironic that you try to appeal to the natural outcome of this extension (Bitcoin not being widely used as a means of payment) to support the opposite claim, that Bitcoin would dispatch fiat currencies. However, no one can stop us from analyzing your proposition theoretically, "in vitro". Could you name just one killer feature of Bitcoin that would render the fiat currency useless as a currency?
There is no such extension of Gresham’s law anywhere except your own imagination. We cannot apply Gresham’s law because we do not have good money and bad money and we do not have legal tender (or any other ways to set an equal nominal value). We only have money and Bitcoin.
Money by definition is the most liquid asset or an asset that is accepted in exchange for all other assets. The key property is absolute liquidity: you know that you can use money to purchase anything you need without the need to convert it into intermediary assets. Bitcoin is not accepted as such, and thus cannot be considered money.
If we assume that Bitcoin somehow managed to become money (which is unrealistic), it will destroy the fiat currency according to the scenario that I described in
my previous post.