In particular, due to material published by Edward Snowden we know for a fact that nation state attackers have exploited this weakness to compromise the privacy of Bitcoin users, but even if before we knew that-- it's a reasonable assumption for any protocol which handles private information.
Unfortunately, Erik Voskuil (maintainer of "libbitcoin", a bitcoin node implementation used by virtually no one) has aggressively argued against any implementation of encryption with arguments that it would create a false sense of security and ultimately convert Bitcoin to a permissioned network. (e.g. https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2016... and the surrounding thread; note that this was in _2016_. The same fruitless discussion repeated in subsequent years.)
I don't think any of Bitcoin's regular contributors have found his arguments persuasive in the slightest. Personally, I believe the arguments are outright incoherent. Never the less, these arguments are repeated every time its discussed.
After years of vicious abuse many Bitcoin contributors simply no longer have sufficient will remaining to proceed in the face of even more drama. It would be perfectly possible for Bitcoin Core to deploy encryption and for software like libbitcoin to not do so-- it doesn't have to be universally supported... but even so, the drama remains and no one wants to deal with it.
As a result little progress has been made in bringing the encryption functionality to completion and users are left needlessly exposed as a result.