This line of reasoning always seems to envision a government that is oppressive, but in a very casual way. They're oppressive enough to outlaw certain types of transactions, but lazy enough to allow free access to crypto networks within their country and to not use the public ledger to track down those engaged in illegal activity.

No real world government that I'm aware of, even the liberal democracies, would pass a law that is circumventable by crypto and then ignore it when crypto becomes widely used to bypass that law. They'll restrict access in such a way that they can identify who is who (KYC) or ban the network altogether. This is what we already see happening.

The only way this works to bypass the government is if it remains a relatively uncommon tool. And if it's an uncommon tool, it's not a useful currency.