Is volatility the only obstacle to Bitcoin being used more as a currency? I don't believe that people in general will turn away from investing for profit in the direction of using BTC as a currency, regardless of the volatility that, whether we want to admit it or not, is the main driving force pushing BTC forward.
Not the only one imo. Another factor is for example the transaction fee problem, here layer-2's like Lightning would have to become more popular.
What you mentioned however doesn't contradict the theory of an increased "use as a currency". What I'm expecting is no sharp change from "investment/store of value" use to "currency" use, but a gradual process.
So if we assume that today 2-3% of Bitcoiners use it "as a currency", then once we have gold-like volatility and popular second layers this could ascend to 5 or 10%, maybe 20%. Investment would be still by far the main use case, but it could become more popular to spend Bitcoins directly instead of selling them, for example if you held them for some years.
New use cases would also pop up. For now Bitcoin is a "risky and speculative investment", just like stocks are. In the lower-volatility scenario it could be seen as an alternative to a bond or fixed interest saving accounts, i.e. a "safer" means to save money.
In addition, no major government in the world will allow a decentralized currency to undermine its own centralized system, even if it means banning Bitcoin as a currency, as some countries such as Turkey, Thailand or Vietnam have done.
None of these countries are full-fledged democracies. Payments in Bitcoin are mostly considered as bartering, and banning this would mean restrict the right to barter. I don't say this can't be done but it would for sure need a full law (and thus broad political support) and not only a "directive" from some "authority".