Ironically this does not prevent technologies like Monero from becoming the next big platform; nor will it really prevent people from evacuating their coins to a more private and self-custodial wallet.

In general it really only puts a few more onerous steps into the equation where there will be fences and people who are expected to digitally mule bitcoin around.

In the same manner that organized criminals work around modern financial regulations aimed at capturing them; they can also work around regulations surrounding Bitcoin itself; and once the Bitcoin itself is fenced off into a Monero or other privacy preserving coin; it will remain there ‘burned’ or get ‘laundered’ by a group of gang members a few hundred times to re-mint coins clean enough to be re-deposited and re-used in the same manner.

It won’t matter in the long run that they are tracking the provenance of every satoshi. Especially not if it’s far too common that anyone making a suspicious move turns out to be a privacy conscious, law-abiding, yet innocent citizen.