So let's say people use cash as a technology for money laundering: they withdraw bank account balance to cash, and then transfer the cash as a way to break up the paper trail.

The equivalent to what is happening with cryptocurrency would be then to prosecute the director of the United States Mint. After all, she is almost certainly aware that physical cash is used for money laundering, but despite knowing that, she continued to run an organisation that produced more of the cash, allowing these criminals to continue money laundering. It is irrelevant that there are legitimate uses for physical cash - we just won't mention that, and focus on how much money laundering happened using cash that her organisation produced. The indictment would almost certainly be able to include evidence that money laundering using such physical cash helped Russian oligarchs and North Koreans.

But that argument is ridiculous. The creators of a technology which is helpful to the law-abiding public and also criminals should not be held responsible for the use of that technology by criminals (in cases where they actively incited criminal use, which might be the case here, it is a bit different). Should kitchen knife manufacturers be held liable if someone stabs someone with one? What if it can be proven that the knife manufacturers knew that statistically, given their size, someone would almost certainly use one of their knives for criminal purposes - or that criminals actually were - but they continued producing knives? As long as they aren't inciting that use case, they shouldn't be held accountable.

What if paper manufacturers learn that criminals are using their paper to create plans to commit crimes. Should they be held liable even if they don't incite the criminal usage, just keep making paper knowing that it is happening?

What about car manufacturers if people are using their vehicles as getaway vehicles? Bus companies that help criminals get to and from the scene of the crime (knowing that some are criminals, but not which exact individual in any specific case)? Supermarkets and water companies who sell food and water that help keep criminals on the run alive?

In my opinion, generally speaking prosecutors should only ever take on such cases if there is strong evidence that the people behind the technologies know that a specific person is going to use the technology for crime, and they help that specific person, or they actively promote the illegal uses.

And the proper order of events if for there to be a public discussion on whether something should be illegal, with legitimate consultation, and a decision made by democratically elected lawmakers, and there should be advance notice of the new law. Instead, in the case of cryptocurrency, prosecutors are trying to take a very tortured implementation of existing laws to twist something different into being illegal. Conspiracy laws are out of control if they don't even require talking to or knowing the people who are allegedly part of the conspiracy. Likewise, the money transmission angle used against mixers doesn't really pass the common-sense test; they are smart contracts that take funds in to one wallet, and spit them out to another wallet, but it is almost always the case that the input and output sources are owned by the same person. Transmitting is supposed to be tranferring from one person to another - you could technically set the output address to go directly to someone else, but that argument would apply to pretty much any smart contract ever. The intent of mixers is privacy, not money transmission.

So essentially they are using basically made-up charges to try to de facto make something illegal that democratically elected lawmakers have not come to a position on, and which doesn't make much sense.