I hear Bitcoin advocates frequently claim that government has an interest in "shutting down Bitcoin", but compared to the all-cash industry of most organized crime, Bitcoin's pseudonymity is law enforcement's dream come true. A state actor would merely have to obtain the identity of one key in a series of transactions on the blockchain, and would gain far more information than any informant could provide. Sure, mixers and other methods could obfuscate this, but it's not like 7/11 tracks serials of hundred dollar bills, so the blockchain by definition is richer source of transaction data.

Full disclosure: I believe strongly in the concept of crypto currencies and Bitcoin, but do not own any coins/alt at the moment.

Not just that, it's the most traceable currency on the planet. It's built on having every transaction fully traceable to the original source - a mined block, through every other transaction that contributed to the one in question. Traceability is a fundamental feature of bitcoins.