Nothing makes negative interest rates impossible right now, in fact it is a reality in several countries. Obviously not something that is available to most borrowers, but government bonds with negative nominal rates do exist, and even US treasury debt has negative real rates (i.e. accounting for inflation) for shorter duration notes/bills. Obviously there is a limit to how negative the rates can become -- eventually the market will find other places to invest -- but that would be equally true with digital currencies.

I fear there is a curious feedback loop on the horizon, where stuff like this accelerates flight into decentralized crypto which then again accelerates further regulatory scrutinity, including bans.

This is possible now, since there's a practical limit on how much business can be conducted in all cash.

Even if every bank account in the country started charging an account fee to cover negative interest rates, people would continue to use banks because they are just so damn convenient.