You can argue that cash is also used for a lot of illegal activity and you would be correct, but that misses an important point, which is that cash has been with us since our country's founding and from a political point of view it would be nearly impossible to ban it, even if doing so would be a sensible policy. Cryptocurrency is still in the infant stages and banning it wouldn't entail nearly as much of a backlash.
I think you're underestimating how many people own/are into crypto. A quick look into Coinbase's S1 alone shows that tens of millions of people in US have accounts with them and they are custody-ing billions of $ of institutional coins.
And that's just Coinbase, ignoring Robinhood, Cashapp, Gemini, GBTC and lots of other exchanges and custody which have very significant volumes as well.
