In my country, the Philippines, crypto owners are urged to declare their crypto capital gains for annual tax filing. This means that we are urged to pay taxes, and I don't think this is reasonable enough since crypto was not yet considered a legal tender.
You have to do this, include your capital gain in tax report if you are a citizen in Western countries where Bitcoin and cryptocurrency are not legal tender. This example means your country is not an exception in tax policy and capital gain from cryptocurrency.
In a way, your government has officially recognized cryptos and not criminalize it like the case in my country. It's a plus for you guys. In my case, as it stands now, I personally don't even know the exact position of my government on cryptos. It's either police is harassing poor people who are into cryptos on the road, searching their phones and threatening them of breaking a law they the police can't cite once they find any crypto app or stuff on such phones or banks are banning accounts with crypto related words during transactions.
If you don't do criminal activites and are under radars of police to arrest you anytime, I see it's logically that police has no reason to stop you on the street, access your phones just to find whether you own bitcoin or cryptocurrency. A nation like this likely have dictator and no effectively reasonable law at all. So that police can abuse their rights and power to do anything they want like you described.
It's almost impossible to find someone identity if they hold their coins in wallet and they only trade using no KYC exchanges. But the question is, are you okay to keep holding most of your coins and never cash it out?
You can do it with no KYC exchanges.
https://kycnot.me/?t=exchange