Its impact on traditional banking or financial systems and institutions will not be extremely large because traditional financial institutions are mostly under the control of the government and a government wouldn't let cryptocurrencies make much of an impact on what they use to rule their people. Governments are completely against decentralization because they don't want themselves to be out of money matters of their people, they want to be present as a middleman forever and decentralization opposes this thing.

Talking about regulatory challenges, we are already seeing that in a lot of countries where transactions, holdings, and earnings are regulated and all cryptocurrencies are under the observation of central authorities, they try and do their best to track each transaction related to them so that they can keep an eye on who is involved so that they can tax them or whatever regulation they have imposed on it.