The government own billions of population, and by setting her face against bitcoin is a competitor, but doesn't seem to prove that they're a top bitcoin competitor without having a downward course in the process. Last question please forgive me, what stops them from building a coin on the block chain that'll bypass the total sum of bitcoin users, and regulate it?
They oppose the existing pattern in bitcoin because they are afraid that their system will collapse, but that does not apply to society. They tried to create a bank product to provide a little resistance, but it was deemed inappropriate and unable to provide any resistance. If we imagine how they try to limit the journey of bitcoin and we can also see adoption continuing to expand. Their decisions are sometimes confusing and they are too worried about bitcoin becoming a competitor to fiat or replacing it.
I think the main issue is the concern of decentralization of Bitcoin. The government cannot monitor where the money is coming from (and going to). Hence, it is risky and prone to money laundering (which most of the time related to crimes and illegal activities). There are also concerns regarding the monetary policies which regulate the flow of money in the market which is important in handling inflation and prices of goods.
In related to this, we are just doing trial and error as of the moment - finding the right balance of decentralization and government policies to provide limitations.