No it can’t. Because there’s no one in charge. Just look at torrent download. Those are illegal (well mostly, depending on what the copyright holder says) and no government anywhere has been able to do anything about it. Because they’re basically undetectable. The whole decentralized unblockable nature of the internet makes it so. It’s trying to hold water in your hand to stop these things. It’s just not possible.
And nobody that matter will us a government created crypto. Since a big part of the lure of crypto is the government doesn’t know anything. If these people wanted the government to know about their money they’d just do regular banking.
For lawful customers and transactions, that would be an appealing and secure alternative to bitcoin and other cryptos because it would hammer the credit card industry by forcing them to reduce or drop their transaction fees beyond the minimum needed for fraud prevention. They would end up as mostly consumer lenders. A smart and disruptive credit card company could go that route first and quickly become the card of choice for many merchants if they did not charge the current hefty transaction fees.
As for bit torrent, it effectively steals revenue from content creators, but since content piracy is illegal, bit torrent has not destroyed content creation. Similarly, if bitcoin and other cryptos were made illegal if they did not follow banking regulations, they would soon be marginalized. Yes, they might persist as a way to pay anonymously like cash, but the dramatic run up in crypto value would be reversed. With crypto mining becoming less profitable and perhaps made illegal, the current crypto enterprise would be in jeopardy due to inability to promptly clear transactions and competition from cryptos backed by actual currency.