The word “g*psy” comes from a set of erroneous assumptions about the origins of the Roma people, and assumes—among other things—that the Roma came out of Egypt, rather than being an Indian-originating ethnic group.  This was tied for a long time to stories about how the Roma got “kicked out of the Middle East” for helping to kill Jesus, making the nails that were used to crucify him, not helping to hide the baby Jesus, etc.

It’s similar—not exact, but this is me straining for a simple explanation—to the use of “Indian” for Native Americans.  It’s a term that describes a people as other than what they are, which was then used for centuries as a dehumanizing, erasing phrase.  “Indian giver” and “gypped” both derive from these inaccurate, othering racial descriptions.

“G*psy” is problematic in part because of the way people use it.  “Oh I’m just living the wild boho gypsy life” and “look at my awesome gypsy skirt” and “let’s sing about being awesome gypsies on the road woo-hoo."  When you belong to an ethnic group where "dirty gypsy get the fuck off my land” has basically been your greeting for centuries, this hurts like fuck.  Someone else’s ethnicity is not your romantic dream of the open road.  Find another word.

So that’s a very surface-level overview of the issues with the word “g*psy.”  There are a lot of Roma bloggers talking seriously about the problems encountered by the Roma people, especially in Europe.  You might try reading them.  You’ll learn a lot, and some of it is not so good, but I think all of it is important.