Worries that privately issued currencies could displace government money were among the reasons the ECB launched its own digital euro project, but the bank is still years away from issuing any digital money.

This is the key worry of governments with cryptocurrencies, and was the main selling point of them initially, before the whole crypto tech bro hype.

If cryptocurrencies would gain traction as a regular payment method, it would weaken the ECB and all other central banks.

I dont see the point in cryptocurrencies currently as they all failed to deliver on that (and many more) promises, but we have seen regions where the government felt the need to ban them, to curb the actual use of the for regular payment. IIRC admids its ongoing inflation crisis Turkey banned the use of cryptocurrencies to keep people from dropping the Lira.

Another thing of course is that the banks are unhappy with not getting their share in money laundering, crime investments and tax evasion, like they do with government currencies. Cryptocurrencies could also democratize organized crime and not just leave it to the established ties between politics, banks and existing crime groups. As Lagarde is a convicted finance criminal that is also a factor to consider in her stance on cryptocurrencies.