I've been thinking of how to react to this story, and am tempted to appeal to people's greed/fear with a message of "your country may miss out on a huge new opportunity and be left behind if you try to stamp out innovative new technologies like bitcoin."
That's what I've been thinking: point out how crypto export was outlawed until the mid-1990s. Then point out how, due to government regulations, American crypto was crippled (40 bit limit) while others had (a) better crypto and (b) crypto development moved outside the US.
This was sensibly fixed when Bill Clinton reclassified crypto software as something other than weapons grade munitions, triggering the dot-com boom. Amazon.com, Mint.com, Paypal/ebay and other Internet notables might be outside America, had Clinton not made that change.
The message: outlaw it, and everyone
but you gets to play with a new, innovative technology.