Government allow crypto to exist because they feel people have freedom of choice to investment but the existence of fraud, money laundering and ponzi schemes is the reason why government is trying to regulate tye crypto space sometimes but ofcourse, the government isn't reasonable when it comes to regulation, it doesn't favour people but just them alone.
The crypto industry is too big for the government to Crack down because billions of dollars are in there that belong to people, we also have many venture capitals and also institutional investors who have money here and will fight th government if they cross the line.
Currently, if the US government wants to ban crypto, it means they are going against the world's largest investment funds, BTC mining companies and tens of millions of voters. No one wants to risk their political career to fight against a new industry that can bring revenue to the country and jobs to the people. A clear legal framework for crypto is what we are waiting for, which will help crypto be better managed, while supporting the police against criminals in the market.
On the other hand, authoritarian governments may not care about the people's wishes or the development opportunities for the country, they only want to protect their own power and interests. The fear of the new financial instrument, crypto, has led them to take extreme actions such as banning crypto or attacking exchanges. I think they are only making things worse over time because people will choose crypto over government.