Dragon egg is placed in a single block of water surrounded by grass/stone (only blocks tested, block type might not matter)
Tested with aether, fire, and water dragon eggs.
Tested in swamp & plains biome.
Y level is less than 65
If it's night the block light level must be greater than 4
If it's day it doesn't matter
Sky light level was 15 for all tests

The egg will change to ghost.

1.16.5 is outside the scope I support, so I won't be investigating this further. I apologize for the inconvenience.