Was it not foolish to expect the State and its agencies to take a principled approach to Bitcoin, when it totally undermines their ability to issue money and therefore its entire source of power?

The shitcoin exchange model was a gift to them. Bury Bitcoin in a pile of dogshit, illegal tokens and traditional fraud, and then let the State throw a towel over all of it when the party ended.

The Regulators know exactly what Bitcoin is, and its existential threat to them and their power. Make no mistake about it.