Is that a problem? That's kinda the whole point. It's docker, so you can make a cloud drive mountpoint with rclone on the host, then mount that path inside of docker if you really wanted to

I imagine most people running immich also have a good amount of local storage

Setting it up in a way that is sufficiently robust is non-trivial. It's not unworkable but we shouldn't underestimate it.

Setting things up in cloud in a way that prevents some proverbial NSA analyst from beating off to the naked pictures of your wife without you knowing, on the other hand, is impossible. Why this learned helplessness? Is this “hacker news” or “layperson news”?