yes, but that situation is temprary: eventually it would face hyperinflation and the price of bitcoin will reach infinite denominated in dollars.
Discussion
the state is really limited on doing bad things proportionally to how bitcoin is adopted. It can still do bad things, but it will eventually run out of resources
if all people are on fiat money the state has infinite resources and power (and people are condamned to slavery)
No, it won’t run out of resources when it can just print fake Fiat money and then buy real bitcoin money with it. At some point, hopefully the fake Fiat money gets so devalued that even bitcoin holders will refuse to sell for it. Until that time, the State can print fake Fiat money, and buy all the bitcoin they want.