I don't see where this argument is coming from. There's no reason why self-driving cars can't be as or more capable at interacting with cyclists than human-driven cars.

Even if issues with self-driving cars did require new regulation, there's no reason that regulation should favor the cars. Cities and their streets are managed by democratically elected governments. If people like cycling -- and many of us do -- then we can construct the regulatory and physical infrastructure to support it.