This could effectively kill the entire ability of people to transact in a way that cannot be traced.
But yet the only reason to use blockchain in the first place is to create these kinds of transactions. So why use it?
I believe Bitcoin is not actually created to make transactions with complete anonymity nor either traceable by the government, it's just to eliminate the middle man and still Bitcoin is capable of doing that. Governments are targetting the mixers because they believe these services were used to mix the coins from scams and hacks and laundered it to their customers by taking good money as commission.
Agree with you, what the government is doing is cracking down on anonymous services because they think it makes it difficult for them to track criminals and manage their citizens. The government has no intention of attacking bitcoin or blockchain as the OP is mentioning. If they really want to ban bitcoin and hinder the development of cryptocurrency, why did they accept bitcoin ETFs and introduce a series of regulations for the cryptocurrency market? What they want is to control the market, to control us, they have no intention of stopping the development of blockchain technology or the cryptocurrency industry.