I feel like doing this makes gender a bigger deal for the kid than it should be. When I was a child I knew I was a “girl” but I didn’t see it as a major aspect of my identity. I was just me. And looking back I was what you’d call a tomboy. And now I’m a very feminine woman. So gender identity didn’t shape my life that much.
This kind of parenting makes gender into like this ZOMG SO IMPORTANT aspect of their life.

Why not just teach them that they’re biologically whatever, and still treat them as though they can express themselves however they like? You can give them all this creativity and freedom without tiptoeing around their biology. And then if they later disagree with their gender identity, you can support them, but the likelihood of that happening is very small.