It’s the interaction between the air and water that does it.

If, hypothetically, you were to move something through the water at that speed, it wouldn’t shatter or just be stopped. There is significantly more drag, so it would come to rest sooner than in air but it wouldn’t just stop.

For example, many small boats have very high rpm propellers that survive just fine- until they start cavitating.

The reason a .50 cal or .308 shatter is the shock of hitting the surface tension, and it’s the shattering that allows the fragments to be slowed down so quickly.

It’s also the reason they were surprised- they forgot to include surface tension in their initial model.