Emergency fund is to protect our saved Bitcoin. Situations are not always the same, we have to go through many bad times in our lives. If we go through a time like we need a lot of money or your source of income is over, we create an emergency fund so that we don't have to sell the holdings or saved Bitcoin to deal with that time.
I think it is always good to keep an emergency fund in cash. Because suppose if someone suddenly falls ill and needs money very urgently for his treatment, what will you do at that time. It is never right to convert the money kept for an emergency fund into something else.
Yes you are right, it would be best to keep the emergency fund in stable currency or fiat money. I would not emphasize on stable currency in the beginning, but try to keep it in fiat money. Or you can keep it in stable currency based on your situation. You have to make sure that you keep the emergency fund ready in such a way that you can easily use it in an emergency. In this case, I do not support saving the fund in the bank either. Try to keep it with yourself as much as possible, because the bank may fail to give the expected results according to your needs.
In case of using the emergency fund, it should not be used as long as you have cash flow. Or even if the source of income is lost, you should not touch the emergency fund in the initial stage. Use the cash flow first, then reach for the reserve fund. Even if it is still not enough, then use the emergency fund. Basically, reach for the emergency fund in the extreme moment of danger when other funds are not enough for you