It doesn't reduce police powers, but in the long term if it pans out it'll reduce the power of fiat currency. That's what people talk about when they say it reduces the power of the government.
You could argue that the increase in law enforcement power would offset the decrease in power from not being able to issue fiat currency, but that would mostly be a silly line of argument to pursue.
Why would law enforcement be eager to support a technology which...
Force mostly has to be individually applied, and you can only take it so far before you have massive pushback in the form of civil unrest.
Printing money, to pick a simple example, is much more effective and can be done across the economy as a whole.
Could you imagine police forces breaking into everyone's home and taking half their cash in a matter of days? It's unthinkable that that would happen for logistical reasons alone.
But that's what we've effectively seen some modern western governments do just recently by rapidly deflating their currencies.
Abolishing fiat currency would take away that power, and make no mistake it is an immense power. It's the power to shape entire economies at the stroke of a pen.
Others getting 'pissed'? What are they going to do? The very limited consequences of Snowden-leaks pretty much show that they can do such things and ignore protests, if the government leaders are okay with that.
Also, if they can freeze (stall) certain wallets indefinitely, that's pretty much as good as asset seizure.