Legitimate privacy cannot be held hostage by criminals, this logic would lead us to ban even non-custodial wallets (wasabi..), non-kyc-exchanges and services (like btcpay used in commerce).
Exactly. This logic leads us to ban custodial mixers first, then privacy projects like Wasabi. Next would come scalability solutions like Ark and Lightning because those "bypass" the UTXO model and make operations difficult to track. Finally, self-custody wallets would be banned. Of course, the order might be different, and it seems to me that governments worry more about self-custody than Lightning, but they will go step by step, slowly banning (or "regulating") all these things.
However, it is important to know that before doing all these things, governments need to convince most citizens that such technologies are for bad people, enemies of society. That's why it is so critical to fight the linguistic battle. I don't custody my bitcoins myself because I am a criminal; I do it because you and your friends in the banking system are the criminals who want to "custody" the product of my life's work. I don't coinjoin my bitcoins because I am a criminal; I do it because I have to protect my family and my home from being broken into by criminals who know how much I hold.
The narrative that only criminals need privacy must be radically challenged, as it falsely frames basic security measures as suspicious behavior.