there is over $1 trillion held in Bitcoin, which represents a lot of people and companies. how exactly do you unwind that without generating a massive backlash and other secondary effects? would the government buy out everyone's position or what?
I think the basic issue is there is huge amounts of cryptocurrency that can't be converted to USD for one reason or another (proceeds of ransomware, inability to pass KYC checks, etc.), and that is causing some crypto assets to be worth far less USD than others, and inflating the price of assets when purchased with those coins. But that isn't stopping people from pricing them just the same.
That valuation is based on what you can, right now, exchange crypto for USD on the exchanges.
Not really - because you could exchange you crypto for USD easily & reliably enough. The second that's true it stops being "funny-money" as you put it.
Contrast that with monopoly money where nobody will give you USD for it.
NFTs - either people are doing it for the giggles or they're betting on greater fool theory
Give a little more credit--they're also great for money laundering.
So, who will participate in this massive backlash in the US besides Elon Musk and Dorsey whose companies have public positions in bitcoin, and a few others?
2. Many companies and citizens and even the US gov itself have over $1M in bitcoin, to name a few: Square, Microstrategy/Michael Saylor, Greyscale, Tim Draper, Winklevoss/Gemini, etc [2]
Safe to say, Bitcoin and crypto is Big Business now in the US, with hundreds of companies and startups in the space based in the US.
[1] https://insights.glassnode.com/bitcoin-supply-distribution/ [2] https://www.kevinrooke.com/bitcoin
For example, they could make a special cryptocurrency tax which is 100%. And/or a heavy tax on all currency exchanges “expect for the national currencies of the nations in Annex D”, and Annex D turns out to be a list of countries that they have a specific trade agreement with.
They can remove long-term capital gains on it and make it all short term treatment or partly short term treatment (I think that is how it works for futures IIRC.)
They could create different categories of taxes (e.g., what we have for dividends), except with higher categories.