I think that you are indeed wrong.

First, it is worth noting that this designation was made by a Democrat Senator from California, not by anyone else (e.g., by someone in the Administration), and a better way of viewing this is that the Internet Archive is replacing the San Diego public library as a federal depository library because it was simply too burdensome a role for the latter as it ran out of space storing hard copies of everything and making it available.

Second, the people involved are excited about this because they want to leverage the Internet Archive's experience in preserving and expanding access to documents, and in particular, the Internet Archive wants this designation because it gets them easier access to these materials by being a formal part of the network.

So I think that this is overall a good thing, rather than something to be very concerned about.