Indirect control of the form "you broke this law and go to jail" is perfectly sufficient. And it is in fact attempts to disassociate addresses and real world identities that are easily circumvented when you have the resources of a government.

> You can regulate things around bitcoin (ie exchanges), but you have no direct control of whether or not a wallet is able make transactions.

In this respect, this is no different than most things government regulates, including money-in-the-form-of-coins-and-scraps-of-paper.

The difference is ease, physical currency is much harder to break apart and move around in large sums without eventually going through something the government regulates. If you kept your transactions entirely in bitcoin, I do not see how anyone could control what you do.