Although Google is giving us Core Web Vitals stats now, we theoretically have until May 2021 until this starts to affect rankings: https://www.searchenginejournal.com/google-core-web-vitals-ranking-signals/387142/
So for now I'd be surprised if you're being penalised for not hitting the CWV targets.
It might be worth considering whether there were any significant changes to your content, backlink profile etc. that could have resulted in a dip in rankings? It could also be that your competitors upped their SEO game recently too.
Another thing might be the fact that mobile-first indexing is due to be complete this month: https://www.seroundtable.com/google-mobile-first-indexing-deadline-march-2021-30974.html#:~:text=Google's revised mobile-first indexing,September 2020 to March 2021.
There have also been a few (unconfirmed) Google algorithm updates lately, which may also be affecting things.
Loads of variables to consider!
I do hope Squarespace give us some clarity on the Core Web Vitals issue before May though, as all Squarespace site owners stand to be negatively affected it. Good luck sorting the SEO issues out.