Bitcoins operate off central Banks meaning the government can not control its supply or influence its value like they do with fiat currencies. This threatens their ability to manage national income. Also since Bitcoin can be pseudonymous, the government worries that people may use it to evade taxes, launder money,Or finance illegal activities.
Why are some embracing it while others seek to regulate or restrict Bitcoin??
Anything that government can't control, government won't accept it or like it, so Bitcoin and cryptocurrency are opposed to governments central system of control. When you have your cryptos in a wallet with your seed phrases, government can't do anything , have access freeze or seize it, whereas when you talk about money laundering and tax invasion, money laundering didn't start with crypto, So government can collect taxes through exchanges which they've already started, and they can as well regulate cryptos via exchanges .
Government unable to control bitcoin could also be a reason for the restrictions of bitcoin, but too bad for them because they can't give a total restriction to bitcoin, because people will still look for ways on how to trade bitcoin and after sometime they will be tired of restricting bitcoin which the government will have no choice for people to trade freely.
When it comes to Financing of illegal activities, cash has played a terrible role here, most of the ransoms the kidnappers collect is through cash. So with fiat it's way more easier using fiat to finance any illegal activity.
Fiat can be used also for all sorts of crime it doesn't make fiat be bad, so even if criminals use bitcoin in commits of crime it doesn't also make people to be criminals too.