Declaring BTC illegal will make it many times more interesting to people. Everything the government forbids, increases -fold in value (like drugs).
The value may go up, but thats assuming demand isnt crushed by prohibition.
One way for bitcoin to survive and thrive is to become successful in black markets. In that case it would become more expensive absolutely. However us westerners belie our ignorance by speaking in generalities and absolutes (implicitly referring to our own society). There are other places on the planet that will not pass laws regarding bitcoin for quite a while, maybe at all.
Those places where bitcoin becomes widely used will see massive benifits. Notably bitcoin is less of a threat to authority in nations with trade surplus and little to no government debt.
