I'd argue otherwise:

The first liquidity providers of bitcoin were cypherpunks and hackers, on the basis it was semi-anonymous and unstoppable money.

Now bitcoin has fallen into the hands of the powerful execs and feds, and we see exactly what your debatee was talking about happening (wrappers, ETF, kyc, etc...)

Yet it seems that now, most of XMR circulating supply is actually used for buying goods and services, privatly, by cypherpunks and hackers.

Plus, saying monero doesn't scale is missing the point, because it already has adaptive block size and bulletproofs.

It is true that privacy doesn't drive the value as much as scarcity in the long run, but your core pool (i mean not used to trade, and actually buying stuff) of liquidity does.