Cryptocurrencies, in relation to constructing hardware wallets, have a singular fatal flaw.
Most popular ones seem to use a very specific elliptic curve for implementing their cryptography,
secp256k1. Ban secure element chips that implement that curve — and bam, you've successfully curbed any efforts to construct a hardware wallet.
Perhaps you could even attempt to ban software that implements it. That is actually much harder to do, but a government could attempt to do it.
That doesn't seem too secure to me in context of covert cryptocurrency usage.