If Bitcoin were a physical currency, its value would not have gone this far, and just the way people do fake currencies and gold, there will be fake Bitcoins, which is not proper, and moreover, if it were a physical currency, the government would be in control of its circulation and also its value.
This is part of the major challenges associated with physical currency and one of the reason why it’s devaluation happens. A physical currency is always expensive to print, expensive to maintain and then needs a central authority or mint to print it. If bitcoin was a physical currency the advantage of it not been manipulative wouldn’t be there because it would just be printed more to cause large circulation of it and causes it to devalue.
Other things like store of value and limited supply wouldn’t be also there. Another biggest issue is cross boarder transactions that can be done swiftly without intermediaries will not be possible with a physic currency of it