Exchanges have something like a $200 limit if you don't register with a real name. Now imagine you have two bitcoins somewhere – it would take like a month of daily withdrawals to get the money out. Now let's assume Bitcoin rises 10 to 15 {88c91daedd271a990a10650c05d769cae2765e0603edf30ca95f18704e5748e8} a month…. that will become a real struggle.
Let's remember: Your coins are safe in a wallet, not in an exchange.

But it's worse: imagine you had some alt lying around that went up 20 fold. Even at the higher KYC tiers there is a runaway velocity: with just moderate rises now you won't be able to get your money out ever.
And especially with the alts there must be thousands and thousands of these accounts – since people are lazy anyways. Exchanges gobble up huge parts of the market, with no way to let costumers out. I doubt exchanges appreciate that – they accumulate more and more risk and become huge sitting ducks. One hack of one small alt, and they're bankrupt.

It gets worser still: Especially with the small alts – were users were less inclined to get wallets in the first place – you will now have sizable proportions of the stake at the exchanges. Most alt are POS variations. A hack (or devious exchange) now might destroy the whole alt (or lead to a split > see Ethereum Classic).

TL;DR: KYC regulations make crypto riskier for users, as they can't move to wallets. Riskier for exchanges, since they become big risk pools. And even riskier for full alts, since they rely on users having the stakes.