KYC is a required part of applying for banks, loans, and debit cards (even online). That does not mean we should make it mandatory for all types of payments just because it's crypto.
The only reason why anyone gives themselves the right to demand KYC and source of funds is because of the simplicity of blocking crypto funds. At the same time, the user does not have many options for appeal or other action against such behavior. Especially when 'smaller' amounts are involved, like your case.