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Let's also consider another scenario where an individual has acquired multiple debts with different interest rates.
For example, let's say the guy in question has a credit card with 20% interest rate, a non collateral loan with a 10% interest rate and a mortgage with maybe around 6% interest rate. He also have a potential investment opportunity which could yield potential returns of higher than 10% annually, but comes with a few significant risks and liquidity constraints.
In this scenario, I believe it might make more sense to prioritize debt repayment, especially for the one that has the highest interest rate, which is the credit with the 20% interest rate. Although, if the guy in question is expecting returns from his investment to consistently outpace the interest rates on their debts, then they could consider allocating funds to the investment instead.
I believe the role of an emergency fund would also become very crucial here, because it'll be providing a safety net to avoid liquidating his investment incase of potential downturns. A 3 months emergency fund in cash might not really earn any significant returns but at least it can do well to offer liquidity and potentially reduce the need to tap into one's Bitcoin or other investments during uncertain periods.
Although, this could vary from person to person because the decision depends on the individual's financial goals, risk tolerance and priorities.
I think that all that you said is correct, including your analysis.. including your assessment that having liquid funds has a considerable amount of value, even if they are not necessarily earning any yield... and so frequently the balances in regards to how much to hold in each might not be the same between different guys, and some guys might be willing to pay more interest on certain kinds of debt, even though logically it does tend to make the most sense to pay off the higher interest debt first, sometimes there could be other rationale, including that if one is 20% and the other is 18%, then there is a not a big difference as compared with the difference between 6% and 20% is more than 3x... and surely the longer that the higher interest rate persists the difference becomes more noticeable when the interest is compounding upon itself and some loans might measure compounding on a daily basis and others might be monthly or quarterly compounding, which also could make differences regarding managing them but also considering if the way it compounds might change the costs of such loans...and yeah of course, if the interest rate is over the term of the loan, and other interest rates might be described in annual terms, so there may be some needs to recalculate when making comparisons. I recall on many occasions over the years (more an 25 years) receiving various zero% credit card loans, and some of them had origination fees and others did not some of them had terms that were 12 months, others 18 months and others 21 months... so if both of the cards have zero percentage, yet one has an origination fee of 3% over 1 year, then that is higher than the one that has origination fee of 4% over 21 months.