I can accept that serialized bills aren't really fungible but in practice the tracking isn't done. If a drug dealer buys a pack of cigarettes at the corner store with a 20 they got from a junky there is no proving it. The laws are constructed such that when you get caught with both drugs and money they assume the money is drug money unless you can prove otherwise. If it were the case that drug money wasn't fungible then they'd track down the previous owners of any confiscated currency.
Discussion
The point I’m making is these outlier scenarios do not stop cash from being fungible, same as bitcoin. If one business decides not to accept you bitcoin because the chain analyzed it back to some illegal activity that doesn’t make all bitcoin non fungible. Same as if a cash transaction was declined due to criminal activity doesn’t make all cash non fungible.
I think the difference is the likelihood that it can realistically be traced and the fact that chain analysis is largely automatic. Even if they made a law that said all bills must be tracked there would be businesses and individuals that failed to comply and that would create gaps.
It's also not one company. It's every normie inclusive onramp to cryptocurrency, governments, and any other interested 3rd party that can analyze the chain.