As I see it, the regulation path may be futile. The crypto community will only be pushed to go underground or use the dark net. In my opinion the greatest “threat” to government controlled fiat money is a critical mass of crypto. If/when there are enough crypto among ordinary people, and not only the rich, then the shops will come after too and offer more goods for crypto. If that happens, there’ll soon be a separate economic system based on crypto instead of fiat. And that’s what should scare governments.
So what should governments do about it? Well, in my opinion they should try to make it easier to connect crypto to fiat instead of banning crypto. Banks should make it easy to convert crypto to fiat directly on the bank’s website; credit and debit cards, such as Mastercard and VISA, should make it easy to convert crypto to fiat so people can spend their crypto in the fiat system; companies paying employees in crypto should be allowed, simply by paying income tax and company taxes; etc. The more you make crypto coins work with the fiat system, the more you uphold the fiat system in the long run. If, on the other hand, you hunt down crypto as the new plague, you risk only to make it grow into a separate system, completely self-contained and independent of fiat.