Unfortunately bitcoin is often used for illegal activities including terrorism and itt anonimity contributed great deal to that. That is the reason why bitcoin had bad reputation very long time, some even considered it as a criminal currency although every currency in the world could be used for crime.
I think Bitcoin is not used for illegal activities much because if a person adopt bitcoin then he will earn himself without any bad activity like if he start trade or to start any other online job with bitcoin. So then he will not need any other illegal activity for making money.
Illegality comprised of a whole lot of actions and inactions. We are not dealing with a burglar or a wallet theif here but criminals of cyber fraud can use it as a form of payment to perpetuate crime likewise drug dealers can use it to launder money globally for payment of their illegal activities hence people use and can use Bitcoin illegally.