Where does the drive live? Where does the server live? (Cloud, Local, Colo, etc?)
What mount method are you considering? (NFS, SMB, USB, etc?)
Have you seen this page yet?
https://docs.nextcloud.com/server/latest/admin_manual/configuration_files/external_storage_configuration_gui.html
It says, "The Encryption checkbox is visible only when the Encryption app is enabled."
So ... Go install the Encryption App.