Doesn't this argument assume that bitcoin will be a medium of exchange in the future? If bitcoin remains as nothing more than a store of value, the volume of transactions would be substantially reduced, which would lead to low security? And if bitcoin has low security, then it's basically worthless.
So does that mean bitcoin being a widely adopted medium of exchange is a necessary condition for it to survive (that is, it can't simply be a store of value)?
You are correct theoretically. Bitcoin does become more insecure with less people using it. However, it doesn't mean its insecure. It just means its a little less vulnerable to attacks. However, Bitcoin was vulnerable to attacks during its growth, and before it hit the mainstream news. So, if anything you would probably expect Bitcoin to be attacked during that time. However, nothing substantial ever occurred.