Virtualization isn't new, it's a technology from the 2000s. I think we are well beyond absorbing any spare capacity that the efficiencies of virtualization squeezed out at this point
Thats exactly correct. The killer app for crypto is criminal enterprise. Yes there are other niches, but nothing that would sustain the industry.
Passing a regulation regarding mining would be difficult to enforce. It's impossible to know what a GPU inside the data center is doing.
At this point the industry is legit, even promoted by individuals in govt (who overtly sell access (cough bribe) using it. So no, you don't need to worry, there's no risk of regulations like this anywhere soon.