It doesn't matter if they can track bitcoins or not, they don’t recognize the medium as currency and even if (which is not possible) they can match with 100% accuracy a crypto wallet to a citizen they can’t force the citizen to reveal a password because it’s part of his personality.Are you saying the government can't track your assets in crypto?
Cause that's demonstrably false.
The court can force the bank to hold your deposit account but they can’t force you to give them your password to your bitcoins because for the state and the court the bitcoins are just random text strings and the password is part of your personality.
Don’t you remember that case where they was trying to hack a locked encrypted phone? Why they didn't had force the owner to give them the password? Because it’s against the constitution and the law. If they want to be competitive they have to reduce drastically the taxes (zero vat and zero income taxes) or the new competitor which is more advanced it will render them useless .
The state is founded in the name of people and the people don’t like pay taxes. Their state their rules.
The dilemma is democracy with minimum taxes or dictatorship with the danger of a revolution. In usa with so may guns around I don't think there will be a problem for the democracy.