If you are really afraid of this, you can either :
-use a P2P service for the original purchase of your BTC, without KYC, so you don't have to worry about all that.
-or use a coin mixer before sending it to your friend, but you risk to flag the coins doing that
Thanks for the reply. And for the pointer to kycnot.me (and others).
I'm curious if coins obtained from all non-KYC sources of Bitcoin are equally at risk of being "flagged". Say I buy some Bitcoin off Bisq. Is there a risk I might never be able to send it to a CEX or other "government compliant" entity as it's flagged? In an ideal world everything would be P2P, and this would be a non-issue, but that's not the reality at this stage. Maybe I'm being unnecessarily paranoid, but these are the questions that come up as I'm trying to learn. Thanks again.
I understand your concerns of buying Bitcoin from Non KYCed marketplace so as precaution you can mix your coins before using it on any KYCed platform so the traces of those Bitcoin will be erased but we can't ensure anything that we receive from the mixer which may arise further query. However It's worth noting that even if your coins are flagged, it doesn't necessarily mean you won't be able to use them. It just means that they may be subject to additional scrutiny and investigation by exchanges or other entities that have to comply with government regulations. So if you didn't involved in any illicit activities and have the record for your income then you can survive.