This will not scale, being that many of the modern cryptocurrencies make it really easy to implement token exchange mechanisms. Fully de-centralized exchanges are coming too, how are they ever going to regulate that?
It really doesn't matter if you can trade $10MM of bitcoin for $10MM of ethereum if after doing so you are unable to pay your rent with it.
Throw some KYC/AML laws on accepting cryptocurrency deposits so that it's treated like a cash deposit for regulatory purposes. Accept as a regulator that a lot of small-time stuff is going to slip through the cracks, in exchange for making gross violations problematic.
Like, if you could fit ten million dollars in cash in your pockets, you'd already have trouble getting it into your bank account without a rock-solid explanation as to how you got it. Bitcoin etc is no different - the US government can avoid caring until you try to spend dollars, then nab you for violating regulations.
That's an interesting thought that I hadn't considered. I mean, when we think of trading stocks, we tend to exclusively think of brokerages and the like and forget that at one point in history, it wasn't uncommon to actually hold a stock certificate in a safe somewhere. It's before my time, but I believe you could turn around and sell that certificate to someone else without involving anyone. Were it a straight cash transaction, it would be trivial to perform without anyone but the two parties involved being aware of the transaction.
In the case of a decentralized trading platform, one could trade between crypto-currencies without the ability of the government to regulate it, but once you wish to turn it into hard currency, that's where regulation can step in. What would be more interesting, though, is if the "original promise" of bitcoin -- that it could be used without turning it into cash (buy a coffee with Bitcoin!) -- became a reality. Unfortunately, it's looking like that's headed more and more in the other direction. I have a feeling, though, if regulation steps in hard, there'll be greater motivation to solving the problems that have made this difficult in the past[0]. Combined with some of cryptocurrencies aimed at increasing/providing anonymity to transactions, you start to head more toward a very difficult to regulate set of circumstances that might resemble the difficulties the copyright industries have had attacking file sharing technologies[1].
[0] And while there has been plenty of motivation and I'm aware of some folks actively solving this problem, the motivation among all stakeholders has to be there, as well.
[1] Though the government has far more motivation to solve this problem than it did as it relates to copyright infringement -- I'll admit it's not a great analogy once you start digging into the details.