The paper trail is perfect only if bitcoin was exchanged for money. It is possible to construct a chain of transactions without touching any money (I buy a widget from China with bitcoins, widget's owner buys something else with these bitcoins, etc).

Not so perfect. Take, for example, using a tumbler - the prosecution can't prove that the coins going into the tumbler were yours, only that you got some coins from the tumbler and exchanged them for dollars.

It might make it hard to prove the coins' source, but it would make proving money laundering easier.

Using a tumbler is not against the law. For one thing, you can't launder bitcoins because bitcoins are a commodity, not considered money.

Many money laundering techniques use a commodity in the process, that doesn't make it not money laundering.

Just because using a tumbler itself is not against the law, if you use it to hide the source of income, it is still money laundering.

You can't get around financial laws by using property instead of currency. "A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property."

https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...

Yeah, but then it's hard to prove that you were money laundering in the first place.

Not today it isn't, but it's not a very far leap for the law to make if it becomes a widespread problem.

Apparently "gold laundering" is a thing in some jurisdictions. https://en.wikipedia.org/wiki/Gold_laundering