I agree that the crush scenaro wouldn't work, but you didn't specifically mention one important reason.

Every time the value dropped, people who have the intention to actually hold onto the currency and prop it up would but up lots of it _and hold onto it_, and it would be cheap to do so at that point.

So the pool of liquid bitcoin the government could work with would keep shrinking drastically.

I believe it's the case that the vast majority of bitcoin are not "on the market," they're being held for the long run.