Both of you are right. One does not exclude the other. Bitcoins having value creates a demand from merchants, who want to accept them and sell them for USD, and

Both of you are right. One does not exclude the other. Bitcoins having value creates a demand from merchants, who want to accept them and sell them for USD, and drugs being available for bitcoins creates a demand from consumers, who buy bitcoins and send them to merchants. If the Bitcoin market consisted solely of drug trade, it would constitute drug sellers selling bitcoins to drug consumers on exchanges, only to again receive the same bitcoins shortly thereafter, as payment for drugs.