The government only makes the reason that Bitcoin is widely used for illegal activities as you have mentioned, to be able to ban Bitcoin. In fact,
the government is only afraid that the banking system that has been profitable for them will be threatened if they accept Bitcoin. Moreover,
Bitcoin cannot be fully controlled by the government, so the government prefers to ban Bitcoin. Although there are several countries that legalize
Bitcoin, usually on a limited basis, Bitcoin can only be used as a digital asset.

Each country has its own rules. For a digital asset, many countries already allow it because it doesn't break the rules on the countries. While for payment purposes, several countries don't allow it because it breaks the laws in the countries. In my view, Bitcoin is actually not banned totally, just banned for specific purposes. It is like in my country, our government is fair enough, they allow people to trade or invest in Bitcoin. But to use it as a payment tool in daily life is not allowed. Bitcoin has a very volatile value, it is possible to bring bad impacts. Also, our law stated only national currency can be used as a payment tool.

The decentralized nature of Bitcoin which empowers people and gives them control over their money/wealth which no government likes because it challenges their authority to control money and people. Governments will ban Bitcoin when it becomes too important and threatens national sovereignty. At least these critics understand Bitcoin’s importance and the power that state currency monopolies .The second  reason is extreme volatility of Bitcoin which benefits some smart traders but majority remains in loss but if you are long term investor then most likely you get huge reward of your patience.


https://bitcoinmagazine.com/culture/why-governments-cant-ban-bitcoin

One word - control. Anything that the government cannot control, they are going to be against it. Bitcoin gives people anonymity and that people can do all these borderless transactions without the need of the middle man that would take away more value out of their money. It is then totally expected of these governments to be against Bitcoins since they cannot control it. Though I must say the government is slowly trying to inch their way so that they can eventually control cryptocurrency.

The government banned crypto because they can not control the circulation of crypto in the market and are worried that people can use crypto for illegal things. Maybe the government is not ready to see their people get wealthy from the way that they can not know and their people can avoid paying the tax of having crypto. If they can open their minds and integrate their system using blockchain, maybe that can give them a solution to reduce the corruption in their country. Maybe many benefits that the government can take from the blockchain that they do not know yet.

I have also asked myself this question and there’s nothing reasonable enough that can make them to ban Bitcoin except that the government always wants to be in control. The government wants to be in control of everything, and since Bitcoin cannot be controlled due to the fact that it is decentralized it has made the government to dislike it. Although a lot of them do come up with excuses such as Bitcoin can be used by criminals and terrorists to transfer money around the world, but things like this has been happening even with Fiat, and there has been a lot of people being scammed  till this day with the use of fiat.

So, if people have been using Fiat to scam others then what's the difference? Business server insert that I’ve made, Bitcoin is less likely to be used for such  illegal activities. So, I think the main reason that the government doesn’t want us to use Bitcoin is because they  don’t want us to have freedom. Although in some situations I’m not really going to blame them because people tend to misbehave when they are given freedom.

It is quite simple why govt. wants to do it. These are just some of the reasons:

• Govt wants to completely control the flow of money and let it go into the hands of the people it wants to send it to
• It wants the powers to be polarized and centralized in it own hands
• It doesnt like rebelling or revolutionary citizens

Probably out of spite that they can't tax crypto entirely or probably out of their childish reason to control the people and what they want. I think there's really no good reason to ban bitcoin besides those things because what's going to happen if they ban it, it will only get much more expensive and people will want them more.

Government like to rule his area.
Same happens with Bitcoins too.
The main reason for which the government treats bitcoin as illegal is due to it’s decentralised nature.
As the government cannot control it therefore they consider it as illegal in it’s nation.
Moreover they also banning bitcoins because of it’s anonymous nature and many hackers using it.
Hope this helps you now OP.

The government gives freedom to the people but wants to control and manage their finances in a cage by of regulation and formality, banking… while bitcoin offers boundless freedom and is completely impossible  controllable.  The government wants to ban bitcoin because it goes against their undesired interests and certainly the government fears the power of bitcoin.  And I think this is a pragmatic idea and will increasingly undermine the system of government, banks will collapse to the way they are currently operating.