It's a universal issue with sandbox based simulation/survival games, as early as Dwarf Fortress. (pre-minecraft for all you super geeks) and probably earlier.

Basically one of the biggest challenge to any development team is to figure out the best streamlining process to mitigate the worst of it AFTER ALL the moving parts of the game is finished, and there is no more new creature/environment interactions left to develop and deploy.

Since there is still region based development- We gotta be careful about streamlining how we go about building big ourselves, The development team won't knee-cap themselves by trying to increase efficiency in how the engine interacts without having all possible interactions already built into the game.

Yes its a known limitation. At some point there simply will be too many game object instances for your CPU to deal with

I have a 4900 and my 13,000 instance base only gets 40 FPS at 4K. It's annoying but every game with expansive base building without hard caps has this issue. Eventually your CPU just can't keep up.

Hard caps are immensely frustrating, I'll take the "you can build as big as you want as long as your PC can handle it" compromise any day of the week.