I don't particularly like crypto (mainly due to inefficiencies being common and it being a breeding ground for all sorts of grifters), but this argument doesn't convince me. Like... what ratio of legal-to-illegal transactions is permissible until you say "no, this is wrong, you can't use it even legally" or argue against it in a "only criminals use this, and you're not a criminal, are you?" way?
If we followed the same chain of reasoning, we can still easily apply it to real money. Cash, especially nowadays, is probably far more likely to be used for illegal transactions than electronic transactions. It's hard or impossible to trace, it can be laundered far more easily, it's easier to cook the books or hide illegal transactions with cash. Does this mean we should move towards banning it, as our society becomes more anchored to digital banking and the ratio of illegality keeps growing?
I still hold to a theory that Satoshi Nakamoto is a brilliant North Korean engineer. The ability to steal Bitcoin with no consequence is an extremely powerful vehicle for a sanctioned country. Yes I get it's not likely but it would be so much more fun if it was true.
There's a lot of talk about drugs and such, but just being able a tool for avoiding sanctions seems to be a bigger one that could be a reason to delegitamize it to drive the value to zero.
The same ratio for cryptocurrency transactions is... most definitely not.