I think the government feels threatened because the government is very scared if this bitcoin or cryptocurrency is used as a tool for money laundering and for payment methods for terrorists so that the government is afraid of the dark side of bitcoin.
Everyone is scared of bitcoin being used by mafias or terrorists but no one really mentioned how unlikely that is. With bitcoin's volatility and the amount of money being transacted by the terrorists, they will be greatly affected by the movement of bitcoin's price. Another thing, do they really know about this thing at all? In movies, terrorists have hacker friends and some digital guy. I'm not sure if that's what's going on in real life since terrorists lived in a poor place that's why they become terrorists in the first place. They were forced by poverty and it's pretty much their culture.
Assuming that a group of terrorists accepted crypto as payment, what are they going to do with it? They are going to convert it into fiat because that's the only way that money will be useable. It will just leave digital trail that can be traced back to them. There's really no point for them to use this currency when they can be paid with fiat instead.
Another thing to note, so what if the terrorists are using bitcoin? How is that different from a normal citizen using bitcoin at all? How is that a big deal?