NanHan

I'm also concerned by this. Thanks for the informative answers here. Hope SS does something about it.

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.

I'd be surprised if a CORE WEB VITALS value is the sole reason for your traffic loss, but I'm not Google and I know how they do like to get people to jump through hoops.
It seems more probable that either someone has started paying for ads or some other design option on the Google Serps is the likely cause. I'm not sure the extent to which you can verify this. You might also, if you use google analytics look at which type of traffic shifted at the dates above, this can help you isolate whether it's desktop/mobile etc.
There is only so much you can do with SS optimisation, we're now left pretty much with assets we can't optimise - Unused JS bundled into the themes as they form part of a shared codebase, even though they are not used in the live site. Idem for some fonts loaded via CSS.
"Reduce the impact of third-party code Third-party code blocked the main thread for 2,470 ms" - these are all SS assets that cannot be accessed for example.
I have written to SS them to make aware of this and hope that it will get a look in at some point, this is particularly poignant if you are providing some scientific way of saying that the drop is caused by such things, and I would write to them.
For your own specific case I would be grateful if you can post any updates here.