Wrong way to think about the problem. Lowering bits does not mean lowering model capacity. Its the opposite in fact - it allows you to you to fit more parameters.
Well, yes within your constraints. In the end, you are choosing between two aspects. Same as with screens: you could have resolution (1024x768!!) or color (16bits!).
Edit: the term I could not remember is tradeoff.
kind of. if we get computers that are 1000x faster, it just becomes a tradeoff between higher precision or 1000x more parameters. the reason resolution has stopped being pushed is that our eyes have severe diminishing returns. it's not yet known whether brains do.