1. Using the money to actually spend it on unnecessary luxuries (emphasis on unnecessary, as there is nothing bad to get some luxury for your self).
Well, no matter how long you intend to hold, you'll definitely take profit at a point or probably sell off everything entirely (not recommended thou) but no one is holding it forever unless they lose access to their wallet. Again, there's no point taking profit to spend on unnecessary luxuries but what seems unnecessary to you might be necessary for others. In this case, as far as they take profit and they can account for it, it's fine.
2. It is wrong to take profit and abandon it on fiat currency, that’s going from an asset with a store of value to one with devaluing characteristics.
I agree with this. However, if they are afraid of market fluctuation and prefer to take profit for whatever reason, they should convert to stable coins and hold it instead of holding fiat that devalue overtime due to inflation.
3. Taking profit to actually invest into altcoins because there is predicted alt season coming with some Altcoins been rumored to be able to do 5x or more is a capital gambling which mostly results more into losses than profits.
I consider this as a financial mistake and should be avoided at all cost.