Legally they can and do where I live. Crypto isn't really even the main thing my local tax authority focuses on, they stack the value of your crypto holdings on top of your regular holdings, and you have to pay tax over it every year.

It's pretty brutal because even if you don't add anything to your net worth, or lose 50% of the value for whatever reason, you still are subject to a near 2% annual tax hit based on the total total amount.

I'm not necessarily against tax, but this is the worst form of taxation ever in my opinion. Why should I pay tax over the same amount of money over and over again? If you don't they'll throw you in jail for a couple of years.