Everyone is also conveniently forgetting that the moment someone invests in Bitcoin - even to 'manipulate' the price (which is laughable, given the lag times of moving funds into exchanges) means they are INVESTED IN THE SYSTEM.

Sorry, there are easier methods that don't involve speculation - but I won't entertain them here.

That would make the USA and UK miss out on the new economy and countries like China, Russia, Japan, etc would have no worries to flood the USA and UK with counterfeit currencies with no fear of retaliation.

It is also possible that Bitcoin never "fails" (i.e. blockchain halts or value goes to zero) but never really grows.  A large portion of Bitcoin prices is speculation on future utility.  If that utility/demand never materializes the price could fall massively (99.9%) without Bitcoin failing.    I mean look at the scamcoins (LTC, SC, etc).  No real use for them but they still hang on to sub cent prices and small volume.  I don't personally thinking this is Bitcoin future but just pointing out value can go down and by a lot without a "failure".

All these comments about 51% attacks are very weird to me. The most straightforward way that a government would go after bitcoin is simply ban the exchanges on the pretext of stopping illegal gambling and illegal drug dealing (which, one will notice, are pretty major parts of the bitcoin economy). I've posted on this before:

Consider what happened to the poker rooms. What's really wild about that action is poker is probably not illegal in many states that ban gambling; it's not a banking game, skill has a significant impact, etc. Moreover, poker is not even asserted to illegal in all the states. The reason they dropped the hammer on Poker Rooms is the passage of UIGEA, which made financing poker room illegal, even though the underlying activity was not necessarily illegal.

Can you imagine something similar happening to bitcoin? Yes, easily. Without the ability to get checks, wire transfers, ACH, Dwolla, etc., bitcoin becomes very difficult to use--not just for drug dealers, but for everyone.

Lots of people have said that bitcoin would survive the loss of Silk Road, but I think it depends. If Silk Road is infiltrated by law enforcement and coordinated high-profile arrests made, I think the site might become too scary for customers to use, and that is dries up in the US. In that case, I think Bitcoin survives. But if they go after it with something like and anti-bitcoin UIGEA (call it ABU), I think Bitcoin could honestly die out.

Maybe you think that an ABU would not pass because there are legitimate for it, I say bullocks. Judging by Silk Road and this forum, the top three uses of bitcoin seem to be illegal drugs, gambling, and Ponzi schemes. It's not as if they are commonly accepted on eBay, for example. Bitcoin desperately needs high-profile legitimate uses. Moreover, compared to Poker Rooms, Silk Road (and the Armory) are terrifying to ordinary citizens. Most people didn't see anything wrong with poker, and UIGEA itself probably would not have passed without land-based casinos lobbying for it. It is true a lot of people think pot should be legal, but just the splash screen of Silk Road shows a whole lot more. If a politician demagogues on Silk Road, I bet something even more draconian than UIGEA gets passed, no problem.

But would this destroy bitcoin?  I mean, it would still be tradeable overseas.  I think it does kill bitcoin as a real currency (as opposed to quirky hobby).  We'd see the mother of all bank runs as US bitcoiners cash out. When this happens, not only with the price drop precipitously, but some of the exchanges will not have enough cash on hand and won't be able to cover claims. This will terrify non-US bitcoiners as well, and at the end of the day I think bitcoin is trading in the range of pink sheets, and the exchanges may all be belly-up. It won't make sense to mine, rigs will be sold off, and bitcoin becomes a cute novelty susceptible to attacks--kinda like Litecoin. And unlike bitcoin circa 2010, there isn't much of a chance for it to rise from the ashes--not with an an anti-bitcoin UIGEA in place, stifling the US market.

I'm pro-bitcoin, so I hope (1) flashy legal uses come to fruition quickly, and (2) the Silk Road is seriously compromised by LEO so that it doesn't become an excuse for demagoguery.

I suspect the hostility to altcoins might have been quite destructive.

For example when I cast asset values in terms of Canadian Digital Notes (CDN), or in GMC, GRF, MBC, NKL, UKB or UNS, they seem quite a lot less volatile than bitcoins:

http://galaxies.mygamesonline.org/incdn.html

-MarkM-

I don't think we disagree, but to clarify: if bitcoins become very cheap due to straightforward government action, it becomes less practical for use in actual commerce (small changes in price due to volume make it proportionately more volatile) and more susceptible to attack because investment in mining follows price.

I agree that it won't disappear, but the OP seems to be asking if it could drop precipitously in value, or if it could fail to make a significant mark on the world economy. The answer to both of these questions is emphatically yes. Will bitcoin persist as a hobby even after government action? You bet, but I don't think that's what OP is asking.

A massive cash out could mean it would take many years to recover ones investment.

Interesting thread today on the 2 million btc that have been generated but never moved. If all sold at once, the last one would sell for a buck.

That's what I mean, it would have to be hacked. Nobody would be crazy enough to sell all their Bitcoin that cheap. If that happened and the 2 million were redistributed, Bitcoin price would bounce back before too long. That event would be well publicized and show that it's not the Bitcoin network that fails, but fools and their money. I think I would sell my car and buy more Bitcoin that cheap knowing that I would buy a new 7 series in a couple months.