I don't know why this economic activity is called illegal? can anyone help answer it? but there is little explanation that currency is not inherently bad or evil, it is only a tool used for transactions and in humans for what it is used for. Like foot if used kicking people will be a crime but if the feet are to run then it's a good thing, ....
Because it is not made by a Government and they consider bitcoin as an outsider and cannot be easily monitored by them.
Even if it's not made, they can still regulate it, it's really up to the government but I'm sure they are already looking on bitcoin transaction.
One obvious evidence that they are regulating bitcoin is when we open an account in an exchange, registered or regulated exchanges requires their clients to submit for the KYC requirement before they can use the platform, thing is, the government can't regulate everything at one time, they are starting with the most use platform which is the exchanges.