I won't say that it's right or wrong but I wanted to share my thoughts on it.
The government is in power because they are the party who runs the country with rules as a supporting force in regulating all aspects.
I'm trying to interpret that the legal requirements you are referring to are about loopholes that are used for actions such as money laundering.
Because Bitcoin runs on its own rules with the intention of not harming the government, for me whatever rules they make will not make Bitcoin controlled. Regarding their success in taking advantage of crypto institutions and controlling crypto with their power, I think the fiat currency system should not be involved with Bitcoin which has its own system that does not take care of the fiat bank system.
It is not that simple, while bitcoin runs a system that is parallel to the fiat one, since the fiat system was basically a monopoly, then it is obvious that governments are doing what they can to make it very difficult for bitcoin to keep existing parallel to it, this is why you see governments passing all kind of laws and using the media to discredit bitcoin, as they do not want people to believe that bitcoin can survive long term, will they succeed? Who knows, but governments are definitely trying.