I always figured the way they'd approach this is by enforcing KYC throughout the transaction chain at and point of use and through exchanges. That way KYC users can only really interact with other KYC users or they'll get flagged. All non-custodial wallets would have to register with a KYC provider to mark them as legal.
Discussion
They want the money on exchanges so they can seize it easily..
Nah, I think they'll be fine with self-custody as long as they know who owns the address.
Yeah, aint gonna happen. The US is less than 5% of the world population so 95% don't care what they want and out of the other 5% only a few are exposed to BTC. They'll manage just fine.
Potentially though I think most countries will sign up in the same way they do to AML rules. And if businesses using crypto are disallowed from transacting with non-KYC wallets, then most people using them will do it.
I think there's a belief in crypto that everyone shares this hatred of the state and opposition to things like KYC. Most people really don't care.