The pro-regulation mooks are largely speculators. Speculators aren't exactly renowned for their thinking, heh. All they care about is "number go up" and they're of the belief that regulation would maybe encourage that.
Yea I've heard this idea: regulation -> adoption -> price increase -> profit.
Once you regulate BTC it adopts a lot of the properties of fiat. But why would the type of person who only uses regulated currency see any difference between regulated BTC and regulated fiat? There would be no reason for them to substitute their fiat for BTC, right?