If cryptocurrency is the answer, then the government should start a new 'coin', and start from there. There is no reason why wealth should be transferred by fiat to holders who were either speculators or engaging in criminal activity (as their are limited other values for cryptocurrency at the moment).
“I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.” – F.A. Hayek 1984
1. Initially, the currency is promised to be convertible to a basket of goods and services. That promise begins the reputation of the issuing institution.
2. Fraud would still be illegal, reputation-damaging, and not “it’s called being smart”
Point 1 isn't true. There doesn't need to be a issuing institution. Just look at gold.
As for 2., yes, it seems that the promises from centralised institutions you mention always end up being fraudulent
https://www.reuters.com/world/us/trumps-new-crypto-coin-spar... https://www.dlnews.com/articles/people-culture/inside-the-tr...
What Trump promised about the central bank is that he would prevent the formation of a central bank digital currency. His audience dislikes the CBDC because it has different rules for what’s tolerable. The most important innovation for those people is that crypto apparently tolerates everything.