I don't think crypto should be regulated at all. Finally, we have a tool that can make these regulations, tariffs and taxes obsolete and expose how useless and harmful they are.
Yes, if somebody starts regulating the cryptocurrency, it will turn to something that will not differ a lot from fiat. Everybody is happy with the crypto as it is decentralized.
That is a very valid point you made. It will not behave like an independent unity but will rather be regulated by the authorities and will loose its importance and its charm.
Besides, there will be this element of uncertainty among the investors about the implementation of taxes on the earning that comes form crypto and majority of them just would not invest their money anymore. Risk is inversely related to the demand for crypto and can push down the demand for a crypto after any such policy is implemented that disturb the value of crypto.