I don't know if that's true or not.  If a merchant is using a payment processor like Bitpay, the processor converts the bitcoin payment into fiat immediately so that the merchant never has to deal with the volatility risk.  Merchants don't particularly want to own bitcoin; they want fiat, and understandably so.  For one thing, I would imagine it makes doing the bookkeeping a lot easier than it would be if they held onto crypto.

You said it better than I did.  The point is that bitcoin doesn't really need to be stable for it to function as a currency, at least not from a merchant's standpoint.  But for the customer who owns it, there's always a potential opportunity cost associated with spending bitcoin--you risk spending a currency that could dramatically increase in value the minute you spend it, and you lose out on the profits you could have made.  I think that's what's keeping a lot of folks from spending crypto.

I fully agree.  I'd have a hard time convincing myself to spend bitcoin for something I could just as easily buy with fiat.  For me, bitcoin has always been for keeping.  Cash is for spending.