You may say that it was not a threat for fiat but unfortunately, and from the government's insights this is a big threat for them. The biggest concern is to have control over crypto which was impossible and creating their own digital currency is their way to combat the spread of crypto.
The government couldn't prohibit the creation of crypto but it was the SEC to find a way on how to stop their project. Many issues had rise concerning these and many crypto projects have been also dissolved with their actions.
They can't really stop projects from happening, what they can do however is at the harshest of ways, jail people who create a project. However once a project is out, then nobody could stop it, look where satoshinakomoto is, nowhere but bitcoin is still around. Unfortunately in today's day and age there are many investors who are expecting project creators to keep on improving and developing and marketing the project so that investors could make money, which is incredibly wrong.
I believe a proper project is something that you do, release to the world, and then you just back off. If the owners are required to keep on working on it, then it is not decentralized and it is wrong. ADA requires constant development that will make smart contracts great, well does that mean if the owner of the project dies tomorrow, ADA is over? I do not want to invest into anything that has that possibility.