well, it won't harm the crypto market as they have different purpose to serve. and also, i highly believe that it can pave the way of more crypto adoption as these users will uncover the true benefits of dealing with other cryptocurrencies when compared to the government-controlled CBDC.
Once CBDC is released and the government forces us to use it, things will be much worse than they are now. Our privacy will be seriously violated and we will no longer have privacy if CBDC completely replaces fiat currency. Furthermore, we will not have the choice of CBDC or cash, the government will definitely issue it whether we want it or not. But maybe you're right, when CBDC makes people feel like they've lost all freedom, it will most likely boost the popularity of bitcoin and I hope the government won't ban bitcoin because of that.