In the USA, you are protected from government overreach of your possessions by the fourth amendment. Some places have already declared bitcoin to be property.
> The rest of your post is just more nonsense. If people found they couldn't exchange cryptocurrencies for fiat, HODL would be a thing of the past, and black market uses would also drop because people don't want bitcoin for itself. BTC is dead without conversion being available.
If you have no background in Austrian economics it may sound like nonsense. Mainstream economics thinks that economies are influenced top-down. The outside perspective ignores that the majority of hodlers have a very low time preference and treat Bitcoin as a long term saving, perhaps even a pension strategy. No early adopters ever expected Bitcoin to grow as rapidly as it did, but many held on anyway. They don't intend to convert back to fiat because they have a firm belief that they won't need to - enough people will desire Bitcoin in the long run that they won't have much trouble acquiring services or goods in exchange for Bitcoin in future, and their purchasing power may be increased too. (So far, has increased beyond their wildest imagination, before governments have even decided what they want to classify it as. Regulation never had anything to do with it.)
Your belief that Bitcoiners can't wait to convert back to dollars is absurd. If you take a look at the value of a dollar relative to Bitcoin[1], then it's quite clear that HODLers aren't merely investing in bitcoin, they're divesting in dollars. Bitcoin is the escape route from a failing fiat system, and some are just ahead of the curve.
While there is a market for exchange, the market will be filled, whether it is KYC exchanges or black markets. People will mostly chose the one which is cheapest, which is currently the KYC exchanges. Increased red tape will increase the costs of exchange, and the black market will fill the gap.
