They don't need the ability to regulate bitcoin. They can just treat illegal exchanges as money launderers (or terrorism funders, or whatever else the go-to argument is today) and slap them with hefty fines. Anyone using these exchanges is committing a crime and can be treated accordingly.
Anyone caught with large amounts of crypto can be treated as a criminal, the same way people who have large amounts of cash on them are treated. It's obviously harder to spot someone walking around with a hoard of crypto coins, no black briefcase required.
This is just another tool in an already very expansive toolbox. All in the name of "security".
That's it. There's no meaningful slice of the pie that goes to #4.
Almost all of us can agree that #1 is illegal, many people and countries currently believe that #2 is illegal, and almost all of us can agree that people participating in #3 should probably pay taxes on their gains/get tax credits on their losses.
#4 is, or has been, evading laws in China and other countries with tight currency controls. A wealthy Chinese citizen can't necessarily just transfer money to a foreign bank account. But he can purchase crypto mining hardware and electricity for local currency, then sell the resulting coins for convertible hard currency on foreign exchanges.
But the idea of it being a "currency" requires it to have some value outside of it being stored (IE someone wants to buy it).
If the only reason for it existing is to show how many you have, it has zero value outside the possible curiosity of "Having the largest number that happens to match this set of arbitrary mathematical restrictions"
Why do you think this is true? I use crypto weekly here in Switzerland because it's comfortable, fast and has lower fees. I could even pay my taxes in some places. Then there are millions of people with no proper access to banking that highly benefit from crypto. But some people just think it's all about illegal things and trading.
Anyone caught with large amounts of crypto can be treated as a criminal, the same way people who have large amounts of cash on them are treated. It's obviously harder to spot someone walking around with a hoard of crypto coins, no black briefcase required.
This is just another tool in an already very expansive toolbox. All in the name of "security".