Yes government has the ultimate authority to control whatever it wants. But in democracy, the government is elected by the people, and what the majority of the people wants, the government does the same. So ultimately, it is the authority of the people to control everything they want. So cryptocurrency is the choice of the people, and ultimately, the government accepts it.
I get the logic you stated here, but I don't think the government really respect democracy when it is down to her country finance and tax. Especially in this part of the world, once the people are elected to their respective posts, they take the power from the people and often disregard democracy. I hope cryptocurrency can give back some power to the people.