Those who are engaging on illegal activities by the use of bitcoin they are just putting themselves in danger. Bitcoin will having a negative mark regarding that once their government knows about it and for sure it is highly possible to ban btc in their country by the government.
Physical cash is the most common medium for purchasing hard drugs, firearms and other contraband in many of the countries. Did that lead to the banning of physical cash by the governments?
Physical cash is the one that has got acceptance among most of the services. But now most of the advancing users prefer bitcoin, because of its high security than fiat. Few months back a team of hackers collapsed entire management operations of a hospital and demanded pay in terms of bitcoin to resolve it. So based upon the users need and accessibility they choose fiat and bitcoin for illegal activities.
Yes, physical cash is liked and accepted everywhere, but it is pretty hard to transfer it if you are living at another country or another state.
Bitcoin is pretty easy if you take in consideration that you can transfer money in less then a couple of minutes to the other side of the world, with a pretty low fee considering the fees that the bank are charging you for a transfer.