The fact that bitcoin is being used points to the value of Bitcoin as a payment system, even if bitcoins are converted to fiat by merchants. The success of bitcoin is measured by its adoption, not by its exchange rate. I would agree with the statement, "adoption is killing bitcoin's exchange rate", but that is a completely different statement than "adoption is killing bitcoin".
I would not even agree with the point that "adoption is killing bitcoin's exchange rate", sure it is putting short term pressure on the exchange rate, however I would think that over longer periods, higher adoption will help the bitcoin exchange rate.
I also agree with your statement that adoption is helping bitcoin. The long term success of bitcoin ultimately depends on people using bitcoin as higher adoption of bitcion means that more TX fees for the miners which they will ultimately rely on as the block subsidies decrease
