Well, by folk you mean boring college folk groups that all sound the same...then yeah.
But if not, it's still there, kids are playing it and loving it. It's also evolved into other interesting sounds, like the Bridge City Sinners, taking a bluegrass sound and punking it up. They're far from the only ones.
And yes, there are many kids today playing more traditional music. You're just not paying attention, as the culture evolves.
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sj