Do significant economic damage to itself and create a global crypto black market or at the very least, be left out of the “innovation loop” and stagnate under its draconian laws.

And surely this is what can happen, I think that bitcoin would start to operate in illegal parallel markets and on the contrary disappear I think it would be more viral.
Well, generally what is illegal or prohibited draws the most attention from the public and companies, this is because it allows a new market to provide new solutions