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Let's assume that the axiom is true, and despite bitcoin being declared illegal by all jurisdictions, people still use it.

What do you think it's market cap will be? What number of people will willingly use an illegal good with harsh punishments?

So yes, bitcoin will still exist. But it will be kind of meaningless if it gets declared illegal, at the fringes of society.

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Just look at torrents and the high fines that go along with it.

Still pretty popular, no?

I imagine it's still popular because those harsh fines are not issued very often.

If cryptocurrency actually enables greater economic efficiency etc. then nations that outlaw it will be left behind, like nations that outlawed the free market in the previous century.

There’s a flip side to especially permissive banking laws: your country’s cash flow becomes overweighted with dirty money, and that dirty money takes over your country’s political discourse. The most extreme example of this is Pablo Escobar or the Mexican drug cartels; both of which have been able to rally large factions of the population against governments that attempt to crack down.

Plus adoption of fiat currency has huge network effects. Cryptocurrency could easily be made illegal with the surveillance tech in place today. Your password is only as strong as your resolve with a gun in your mouth.

Like the drug economy?

Ok, let's go with that. How many of your friends would associate with the drug economy? Would you tell your employer that your are associated with that?

And I'm talking about dealing drugs, not about smoking a joint which is socially acceptable in many places.

Cryptocurrencies do not need to be adopted on the same level as state-issued fiat currencies in order to achieve this goal. So long as they provide a means for some people who wish to live outside the state, evade taxes, launder money, and channel resources into actions which harm the state and its ability to enforce laws, it succeeds. As long as there are privacy problems being solved by their use, they will appeal to people who value that privacy over living under the control of state governments.

Apparently, quite a few.

"The United Nations Office on Drugs and Crime's World Drug Report 2005 estimates the size of the global illicit drug market at US$321.6 billion in 2003 alone. With a world GDP of US$36 trillion in the same year, the illegal drug trade may be estimated as nearly 1% of total global trade."

https://en.wikipedia.org/wiki/Illegal_drug_trade?wprov=sfla1

So to a first order approximation, 1% of people are involved in the drug business. Not a huge number.

Marijuana alone is the largest agricultural product by value in most states by a pretty wide margin. And that’s been true for a decade before it was legalized anywhere recreationally.

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