I think what happens if a government does something like this is the recipients become cautious.
If a person thinks there is a chance the government will swoop in and confiscate their bitcoins the recipient will be extra cautious and some mechanisms to protect themselves will appear. These can take many forms from just adjusting the price to account for the risk to adding time to verify all is well to who knows what? Businesses will appear to help with this.
Of course, now you are well away from the free-for-all bitcoin and into something much more established as a regulated currency…which was what bitcoin never wanted to be.
To me this sounds like the standard Libertarian punt of “We’ll do some bad legislation and hope the free market sorts it out.”
If you want to see how this ends, look at every country that bans foreign currencies (including the US dollar). To borrow a phrase, they tend to be shitholes, and the US dollar remains supreme anyhow in spite of it.