I think a third option similar to option 2 in that yes the government will have the power but still its coin would not take over outwith that country because crypto transcends borders.

For this reason I think that people would pay lip service to this country's coin if they lived within it but it might actually open their eyes to the world of other coins and ultimately might be the end of said government or its coin as people moved into other crypto and used only the government's coin for the transactions that it were necessary for. They would potentially keep their real with in as better coin. If that makes sense