In order to seize someone's cryptocurrency, the government has to literally seize the private keys used to sign transactions. This could be as easy as seizing computers containing the key but it could also be as hard as torturing people until they reveal their seed phrase.

They can't simply order the banks to freeze people's assets. They have to physically go there and try to seize them. This puts a limit on the scope of their operations. It's just like surveillance: encryption makes dragnet espionage harder but it's still perfectly possible for a target to be attacked directly.