It is my hopefully reasonable expectations, that a generic initrd
(presumably "hostonly=no") does support LUKS encryption.
In any case, I very much prefer generic initrd. By "generic initrd", I
mean "create once - boot anywhere". Install on internal hard drive, copy
to USB, boot on another computer. Always functional. [1]
"hostonly=yes" seems to be the opposite of a generic initrd.
On Microsoft Windows when attempting to boot an installed hard drive on
another computer it likely results in a blue screen. (Never mind TPM
encryption dependency nowadays.) I never liked that and always preferred
that Linux distributions can be booted anywhere.
[1] Of course, subject to architecture compatibility such as for example
Intel/AMD64 only.
The commit which closed this issue:
https://salsa.debian.org/debian/dracut/-/commit/baed5007dff0261fef7fc518ae659949188885bd
