People can pretend all they please. There’s still two genders only & one is either one or the other, even in mutation.
History shows us the ups & downs of society’s regard for mental illness. Either pandering to the obviously ill without regard for treatment, locking them them up in hell permanently – & everything in between.
If this vital identifier is eliminated from the record it’ll make it hard for law enforcement, to a degree. If one thinks about it, it adds an extra layer to individual privacy, which otherwise has been sliced away by other measures.