I have to admit I don't fully understand the Bitcoin protocol. But from what I do understand, transactions are traceable -- it is the main reason decentralization works: the world can watch and confirm that a transaction is legit.
Why then can't we observe when a thief tries to cash out or otherwise exchange a Bitcoin that we know to have been stolen?
1 out of every 14 Bitcoins is now stolen property, and there are plenty of laws governing stolen property.
What am I missing here? With so many Bitcoins identified as "stolen," why can't they be traced, recovered and returned to their rightful owner?