Government cannot take money from a crypto wallet because of cryptography. They could only do it if they compelled you to hand over your secret keys against your will. They also may not even know you have a crypto wallet since it is not registered in your name and is very easy to hide.
On the other hand, government can sieze funds from your bank account by seeking a court order or whatever legal instrument is needed in your jurisdiction.
Exactly, and that's why in EU a transaction to a self-custody wallet from an exchange you need to declare that wallet as your own. Then when the government want to seize your BTC they can track from that wallet onwards all transactions.
The problem with crypto as a hedge against government overreach is with fiat exchanges. I hope more businesses start accepting crypto and you won't need to go trough an exchange that often.
What they can do is (in England & Wales, for example) is to impose a confiscation order on you so when you do end up liquidating your easily traceable crypto current, they will simply come after those assets.
no, while you are typing, there are senior finance legislators that are reviewing multi-hundred page reports where "the only legal way to trade is with a licensed broker" i.e. you Joe Citizen cannot hold your own keys. If you have not heard of this, welcome to old news in the USA and elsewhere. This is not fringe or conspiracy at all.. this is lawyers in the backroom for the last year(s).
On the other hand, government can sieze funds from your bank account by seeking a court order or whatever legal instrument is needed in your jurisdiction.