Its a settlement layer. Who cares. And you think they already cant access your transactions through the traditional system? Thats how they catch criminals every year.

Accessing transactions in the traditional system ostensibly requires a subpoena, and is limited by jurisdiction.

You would need the same to identify a fiat gateway with btc. You cant link a person to an account without that.

I'm skeptical that you couldn't. Anonymous data is often not quite as anonymous as we think, and identities can be deanonymized by cross-referencing with other public info. If even one of your on-chain transactions leaks identity, your entire history with that wallet is compromised.

It's just a public/private key generated. How would they ever find out who you are?

Many/most people go through online exchanges to buy their bitcoin instead of meeting with people locally. These online exchanges perform KYC and will readily provide the government with which addresses you sent your bitcoin to.

Even if the government didn't have that, they might still be able to deanonymize you via your transactions. Pseudonymity is not anonymity. If a single merchant identifies you as the buyer in a transaction, the government might be able to figure out the rest of your transactions in that chain.