So essentially you're saying they can't make bitcoin illegal, just make it completely illegal to use in any practical manner. That sounds like making bitcoin illegal.
Regulation does not necessarily mean "make it completely illegal". Food is regulated, but that doesn't mean the government has made it illegal (or even difficult) to eat.
In some countries (eg UK) prostitution isn't illegal. It's just illegal to ask for money for sex, its illegal to imply you'll pay someone for sex, etc. that sounds like what the government could do to bitcoins. As a result prostitution is de facto illegal.
Yes, the government could do that, but it's not guaranteed they will. My point is merely that regulation does not necessarily mean making something completely illegal.
