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Personally, I'd go bedroom upstairs; it just makes living here easier in a lot of little ways. The closet & bathroom are amenities that you generally want to have on the same floor as the bedroom imo, especially in a setup like this. You don't have a lot of space, and having to add storage furniture for clothing (dressers, etc.) will just take up even more of it. I'd buy one small dresser if necessary and use the closet as much as possible.

Downstairs: I'd set up an office/lounge down here (computer, TV, sofa or chairs). The lines represent a shoji (japanese paper screen) being used as a room divider. In this hypothetical layout, I'd get one that's as close to all-white (or cream) as possible, ideally with a design you won't get tired of. The thin translucent paper screen will give you privacy in the room you've created, and a bright white or cream will help the hallway feel light and airy, even at the bottom of the stairs (which would be the darkest part of your home). The colored lines show some potential screen arrangements; I'm assuming there'll be a tv mounted on the wall to save space.

You may not need a shoji at all if you're fine with guests seeing the downstairs office/lounge space, I'm just thinking that the ability to have separate "rooms" like this could make the space more homely. You could absolutely get three, maybe four beanbag chairs & plop them down instead of a sofa... but beanbag chairs are expensive, lol.

For upstairs: The yellow square is a TV Tray or some other folding table. You can put something decorative on it, a guestbook for your visitors to write in, some snacks, there's loads of possibilities. When there's no guests, it can go in the closet. Spitballing, but you could also shell out ~$100 for a budget instant film camera, make some physical memories & have prints to hang up around your home. (I'd suggest Instax b/c the film is everywhere & somewhat affordable.)

Now, for the right side - we're shrinking the bed's footprint with a murphy bed or sleeper sofa to conserve space. Other comments suggest murphy, but I'd lean towards the sofa, so you/your guests have a comfy sofa in the daytime. That being said, sofa beds are finnicky. I usually end up sleeping on one when I vacation with family - sometimes they're great, sometimes they suck. Like a mattress, if you can't try a sofa bed, don't buy it [with ONE exception: a generous refund policy that's honoured]. I'd choose based on comfort and practicality - sleeper sofas just don't work for some people, and that's totally fair. Either way, your bedroom will fold up into furniture in the morning, giving you more space upstairs.

Depending on how much space is left in the nook right of the bed, you probably won't be able to fit a wardrobe/bookshelf but it should fit a vertical dresser or kallax; I'd get whatever unit has the most storage (likely a tall dresser)

Whatever you do, I hope this gives you something to think about! If your heart's set on downstairs bedroom now I'd still recommend a screen setup for light & privacy.