You're taking the quote out of context. "High powered money" is not what consumers touch, and it is not the majority of money. In the very next paragraph he says: "Now, you would think that that's a bad idea because there would be no provision for expansion; however, high-powered money [currency plus bank reserves] is a small fraction of total money and the ratio of total money to high-powered money has been going up over time."

For the definition of "high powered money", see: https://en.wikipedia.org/wiki/Monetary_base ("in economics, the monetary base (also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is defined as the sum of currency circulating in the public and commercial banks' reserves with the central bank. The monetary base must not be confused with the money supply which consists of currency circulating in the public and non-bank deposits with commercial banks. Normally, the money supply excceds the monetary base by far; the ratio of the two is referred to as the money multiplier. If one excludes currency from the definitions, the monetary base is not a subset of the money supply - rather, the two are disjoint sets. On the commercial banks' balance sheets, the former belongs to the assets whereas the latter belongs to the liabilities.")

With Bitcoin, the total money supply is fixed (which Friedman acknowledges as a "bad idea" in your quote), not just the monetary base, because there is no fractional reserve banking in Bitcoins (or at least I'm not clear how you'd build fractional reserve banking on top of Bitcoins).

That distinction is irrelevant. Decentralized or not, Bitcoin is an inherently deflationary currency, and deflationary currencies are bad for the reasons you can see by observing Japan. Deflationary currencies create an extreme incentive to save, since your money will be worth more tomorrow than it is today, which suppresses what really makes an economy move: spending and investing. Whether it's centralized bank policy or an algorithm that causes the deflation is an irrelevant distinction.

The idea that money has intrinsic value or should have intrinsic value is poisonous. Money is just a proxy for goods and services, and the only point of money is to facilitate getting everyone to engage in productive activity. Encouraging people to park money in a digital wallet because it will be worth more tomorrow is the last thing you want.

Japan's famous savings rate was actually one of the causes of its problems in the last couple of decades: http://aparc.stanford.edu/research/causes_of_japans_economic... ("Surplus in Savings: Japan has traditionally enjoyed an unusually high savings rate and a comparatively low consumption rate. During the decades of recovery and high-speed growth, this 'savings surplus' supplied sorely needed capital to private industry in the form of bank loans. This money was used to build and expand Japan's industrial infrastructure and to achieve the rank of a world-class manufacturing power. However, during the 1990s, the 'savings surplus', once the indispensable fuel for high-speed growth, became a serious, structural impediment, leading to a severe slump in demand and causing a heavy drag on Japan's economic recovery.")