The way I understand it is that BitInstant is effectively a money changing operation. They would convert Bitcoins to dollars and vice versa. From the story, it appears that moneychangers (like banks) are required to report large cash transactions to the Feds. BitInstant apparently failed to do so, and was intentionally facilitating illegal drug transactions as well.
Why anyone would be surprised that the government would step in under those circumstances eludes me.
Furthermore, after reading the story about BitInstant’s operations, I can’t see how anyone would trust them with either cash or bitcoins. One guy actually said he wouldn’t send them any more money than he could afford to lose. That’s sure not the attitude I have when I send a deposit to my local bank.
Also, the story mentioned the “fees” charged to convert cash to bitcoins. Why not just spend dollars and avoid the fees? Unless you’re purchasing something illegally I suppose.
Quite few bitcoin supporters in here, some who are apparently enamored with the technology, and a lot who just don’t trust “fiat” currency. The latter bunch of you might consider adopting a bit of justified distrust of the bitcoin architecture as well, before you take a plunge and lose your shirts.
“That’s sure not the attitude I have when I send a deposit to my local bank.”
Then you haven’t been paying attention.
Libertarians who are very vocal to make up for their small numbers.