Some industries, like sex work and cannabis sales, can be both legal and rejected by payment processors.
The law says they're legal in some places, and local authorities agree. But payment processors still want to protect themselves and their investors, so they decline to do business with such industries.
The moral hazard in this case is not that crypto may be used to avoid regulations.
The hazard is that a handful of private companies serve as de facto regulator and enforcers for all commerce.
You can tell it's a hazard because some people view any alternative payment system as possibly illegal.
You may think crypto should be criminal, but cash should be legal, based on the average age of this forum. But the younger generation has only ever used cash for illegal transactions, and there should be no surprise that governments would prefer a cashless society.
If you believe that crypto, cash, gold, and any other non-banking solution for payment remittance is likely to be viewed as criminal by regulators, then I have to wonder who the regulators are really protecting.
the regulators might view that as criminal.