It's not that it's value would go down if a real world use was found, it's the fact that it ceases to be of monetary value if it goes out of circulation due to its utility.

Most of the world's gold supply isn't stuck in people's teeth or in your home Hi-Fi contacts. It's sitting in vaults doing nothing but functioning as a monetary unit.

A monetary medium that also has a utility value DOES detract from its monetary value because it makes it a targetable commodity in its own right and therefore inefficient in it's monetary role. Cryptos are almost perfect in this sense because they have almost zero utility value. They are pure monetary tokens and are therefore one step closer to monetary perfection than gold was.

If you really need it spelled out, think of it this way - a funfair uses plastic tokens as "money" to pay for rides. Those plastic tokens are almost worthless in the hardware shop where they only have utility value. On the other hand, inside the "funfair economy" their value accrues to maybe 10,000% of their utility value. The difference is their monetary value when used as a currency - i.e. the price you pay for their "monetary role".

Now lets say you increase the utility value of those plastic tokens by having them perform a function - say, monitoring your heartbeat. Now they will perform less well in a monetary role because a load of them go out of circulation and eventually there's not enough left to effectively use as a currency. A few are still traded and have high value (higher than before even possibly) but they're not used as a currency any more due to being a poor monetary medium.

Finally, one day along comes another company selling cheaper heartrate monitors and blows away the valuation because we no longer have "universal adoption", just utility in a very specific sector.