It also informs you when people in your contact list are using Signal. It's probably not scanning through all of the phone numbers in Signal's database locally, so it is exfiltrating your contact list as well, exposing your network.
Personally, I'd prefer a model where I am not required to place even that much trust in the messaging provider.
They claim they do that in a privacy-preserving way with crypto magic but it's the inform-people-when-you-start-using-signal part that is a problem
If you can't tell if a contact has Signal, it would have to default to SMS - and when sending a Signal message (to either a phone number, or in the future, a non-phone identifier), there'd be no way to tell if you're sending it to someone with Signal, or sending it into the void.
Maybe that's a trade-off you'd be willing to make, I don't think it's cut-and-dry though.