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Apologies if this has been researched/debunked before. If so, or if my understanding of bitcoin is incomplete, I will appreciate corrections.
Suppose the existence of a hostile government cooperating with a central bank. The government is willing to steal from its people by devaluing its currency.
1. The central bank buys out all of the bitcoin available on the market and hoards it. The holders of the bitcoin are under pressure to sell in order to take profits. Weak hands are effectively shaken out.
2. Those who refuse to sell on the open market establish smaller secondary markets limiting themselves to counter-parties who must agree not to trade with the central bank. The reduced liquidity immediately reduces the value of remaining bitcoin in circulation, reinforcing the attack.
In a realistic attack scenario this will be coupled by massive deployment of compute resources by the government designed to make mining less profitable, internet filtering, legal persecution etc. but those vectors are not interesting.
Thanks,
Zab
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