Government can only regulate bitcoin and crypto if you store them on centrazlied exchanges. Government can get data from these exchanges as you have done KYC on those exchanges. They can tax you on the capitical gains or crypto stored on the exchanges.
If, on the other hand, you store crypto in decentrazlied wallets and exchanges, the government and financial institutions have no access to those places and they have no control over them.
Crypto is not a spherical horse in vacuum so you need to interact with the world to buy something or sell something and get payment in crypto (or why do you need it else?). And when you interact with outer world your crypto addressed can be tracked. You live in the outer world as well, so government has options to make you to do what they want anyway.