If I was the government, I would regulate every CEX as much as I could. I would forbid bank transfers happening when the receiver is a cex unless It's strictly regulated (this is already happening, but I would endure It). I would regulate stablecoins, those owning these assets on omni or EVM chains would have to provide KYC or else would get their assets burnt. And lastly, I would encourage banks to offer bitcoin products to clients as long as they follow my regulations, this way not only I stop bitcoin, but also profit from It.
But of course, 10 minutes later after I impose my regulations, a bitcoin block would be found. There is no way to fully regulate bitcoin.