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It can certainly be banned, prohibited, and censored to an extent (current BTC gossip protocol is unencrypted via TCP, if I'm not mistaken), plus the on/off-ramps can be outlawed.

As I understand it, the regulation is largely on how it interacts with a country's own currency or banking system, which indicates to me that users need to do this in order to have real-world use. You can have all the virtual currencies you like online and as far as I'm aware no government cares, the taxman isn't looking at your millions of gold in WoW or Eve-online ISK, but they would if it's used the same way crypto currencies have been in their jurisdictions.

"You can't regulate it away"

"Of course, you can regulate it away."