A certain degree of traceability is necessary to protect the population: the number of people kidnapped and tortured to force them to transfer BTC is significant, and there is no better protection than being able to find those who commit the crime and go after them.

There are many problems with this; one could imagine a future "rules-as-code" model, where elections are on-chain votes and a country's (world) general decisions are made via human on-chain voting, so that if a state becomes criminal, it faces major physical limits. However, there will always be a fault line that must be accepted in order to have a functioning civil society.

I could hide how much wealth I have, but I could also be caught and robbed, and the person doing it might or might not believe that what I've given them is actually all I have. Then we're back to the stereotypical Wild West where crime is used to justify power and repression, because on one hand you're creating criminals and on the other you're selling fake security. Playing with your cards relatively open ensures a sufficient trade-off so that you aren't at someone's mercy but can still have a civil society.

In reality, you can't expect a society of rational beings who act with a certain level of civility every day, especially when things go wrong.