These regulations would require KYC for every wallet that American Exchanges send crypto to; meaning that you would not be able to withdraw from American exchanges without registering that wallet with Coinbase who would then register it with the IRS.

Why would that alone be a problem? You'd have to register one extra address to send your funds to from your other private addresses before sending them to an KYC'd exchange.

If regulators get it in their heads to criminalize all transactions between non-registered and KYC'd addresses, then we'd be in trouble. All funds outside of centralized exchanges would be locked out of all fiat off-ramps forever. That would totally destroy the market. All such funds would have to be offloaded illegally and at a steep discount. If they ever wanted to get rid of crypto altogether, that's what they'd do.

At the same time, Russian oligarchs are allowed to launder hundreds of billions through Western banks that only get a slap on the wrist when they get caught. The little guy has to go through this KYC/AML nonsense whereas the big boys use the traditional methods like they have always done.

One solution possibly in the cards to legalize everything would be to require all public blockchains to add metadata to all addresses that allows all of them to be linked to a real world identity. Then all node operators would be forced to check every transaction against a blacklist making not blocking a transaction involving a blacklisted address (= any address not registered with a centralized database or a separate identity blockchain) on the pain of a bazillion years in the worst prison Wedding Bomber operates. Wedding Bomber would threaten prosecute anyone on the planet based on any flimsy claim to jurisdiction.