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?
Do you think they care between regulated BTC or unregulated BTC in the first place? no, check the trading volume in Binance, you will see a lot people trade and hold their coins in Binance.
I only feel fearful if censorship comes on the blockchain which, if occurs, will make Bitcoin blockchain be no longer unique and different than altcoin blockchains that are all centralized and can be rolled back, censored.
It doesn't need regulations or government interventions to censor Bitcoin, the fact is the developer and even the Bitcoin enthusiasts want to censor Bitcoin!
Miner avoid to include Coinjoin transactionsMany users support to censor ordinals inscriptionsIf someone want to censor ordinals, you're nothing different with government that want to censor mixers.