Fungibility must be perfectly binary because it's an intrinsic property of the currency. And it's essential that it be treated as such because there are huge implications to whether or not a currency has that property.

A million dollars of stolen cash is worth strictly less than a million dollars only because those bills cannot be exchanged for another million dollars. It does not mean that the dollars those bills represent is worth strictly less than a million dollars.

Think about it this way. To launder your million bucks, you pay someone $10k. Does that mean the million is worth less? No- because the $10k you paid someone to launder it is still worth $10k! It's just not yours!

No there isn't a spectrum. A stolen million is still worth a million. If a thief is laundering the money, he's choosing to spend it--no dollar just loses value all of a sudden.

You may be using cash once used to buy drugs or hire an assassin, but it doesn't get tainted and diminish your ability to spend it.

Restricted Bitcoin literally cant be used for transactions making the Bitcoin itself worthless even if it wasn't you who committed the crime that got it restricted. That doesn't happen with cash.