Traceable yes, but also anonymous since a BTC address is just a number without any personally identifiable information attached to it. It's at the edges - e.g. exchanges - where it becomes traceable.
If I were a narcotics undercover agent, I'd be working to become The Guy locally to trade Bitcoins with in this manner.
Have a partner snap a photo or follow them home to compile a list of people transacting like this.
Chances are good this is already happening in some cities.
And if your id is leaked in one transaction, it links your id to all other transactions done with that wallet.