I don’t think even this is a requirement. Really all you need is all large transfers of wealth to be reported to central governments so they can collect tax, and enforce money laundering prevention rules.
Don’t think a government really cares what currency you use, fiat or crypto, as long as they get their cut in a currency of their choice.
You're entirely right that they want their cut, but they also don't want to end up like a country such as Indonesia or Vietnam where all the financing has to be organised in the USA. The US FED can print money during a recession to ease credit conditions; many non-western countries have no such luxury because while they might have a sovereign currency, all the serious enterprise in their country is financed in New York and cities in Western Europe.
I mean, I could lend you 500 sheep and request 500 sheep + 10% per annum for each year you hold my flock. If you held for 1 year, it would be 550 owed. 2 years, 605. 3 years, 665.
With sheep, you might approach this by breeding them with the aim to produce more sheep than are owed, or selling the wool to buy more sheep or whatever.
However, we could also do this with a scarce and inorganic resource such as palladium ingots. In this case there can still be interest but you would have to exchange other resources in order to acquire more palladium to pay back the loan. It is still functional provided the market for palladium has good liquidity.
EDIT: for more clarity, you could borrow bitcoin with a bitcoin-interest component in order to acquire an asset. Then if you could get paid a salary in bitcoin as well, you would be able to pay the loan back.
The key thing is ensuring that all exchanges of wealth only occur within a currency controlled by the authorities. They are not really concerned about minor instances of tax avoidance; the primary concern is that large scale economic activity could start occuring outside of a government controlled credit market place.
The goal here is to ensure that Bitcoin is financed in USD, and that the finance of this asset remains in government controlled credit. You can borrow bitcoin sure, but its in USD credit markets.
You can't at this stage get a bitcoin-mortgage, or a bitcoin credit card that never references USD. Imagine if you could transact in bitcoin all the time, and post assets as collateral to get bitcoin loans with interest pay-able in bitcoin. This would be a point where people stop measuring bitcoin in USD and start measuring things in bitcoin, and is something the US regulators seek to avoid at absolutely all costs.