On paper, Bitcoins sound like a libertarian's dream: A virtual crypto-currency that's veiled in anonymity, free from ties to national governments, and wonderfully bereft of transaction fees? Take that, The Man! But now that Bitcoins have been thrust into the limelight, The Man is starting to take back. Earlier this week, a federal judge in Texas ruled that Bitcoins are indeed a currency, and therefore subject to government regulation.

The judgment didn't occur in a vacuum. Judge Amos Mazzant came to the determination during a case against Bitcoin Savings and Trust, a hedge fund that "raised at least 700,000 Bitcoin in BTCST investments, which amounted to more than $4.5 million based on the average price of Bitcoin in 2011 and 2012 when the investments were offered and sold," according to the U.S. Security and Exchange Commission. When the SEC filed the case, 700,000 Bitcoins were worth in excess of $60 million.

But all those digital dollars weren't invested in earnest, and the SEC alleges that BS&T operator Trendon Shavers defrauded his investors. Shavers' defense? Bitcoins aren't money, so shove it, SEC.

Judge Mazzant's finding squashed that argument, as Ars Technica first reported. Here's what His Honor had to say:

It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money .

Note, however, that Mazzant's ruling doesn't appear to give the SEC the power to directly regulate Bitcoin trading; the SEC has always overseen security investments such as the one offered by BS&T.

An infographic explaining how Bitcoin works. (Click to enlarge.)

This isn't the first legal blow against Bitcoin's Randian ideals. Earlier this year, the U.S. Financial Crimes Enforcement Network said that Bitcoin exchanges are considered money service businesses under U.S. law. Shortly thereafter, the government seized assets from Mt. Gox, the largest Bitcoin exchange in the land, for failing to properly register as a money transmitting business.

Mt. Gox got its paperwork in order lickity-split, but one thing is clear: If Bitcoins are the currency of choice for a computerized Wild West, the sheriff is pushing hard to impose some order amongst the chaos.

[Now read: 7 things you need to know about Bitcoin]