Since the blockchain is public, then i am sure anyone using BTC should know that there is a possibility of their coins being traced if they do not adopt privacy solutions. The orginal purpose of BTC was instead to be a p2p electronic cash that is censorship resistant and permissionless, and it is still that, if you do not use custodial and centralized services, you cannot be censored and your coins cannot be confiscated.

I don't know where you are going with your arguments, but what makes you think that now BTC can be stopped by the government, i don't see any single point of failure.