Currently this happens:

P1: A Spy cloaked is invisible from enemy players regardless of where they look. The Heavy is unaware of the Spy's presence.
P2: Even while uncloaked, the Spy is invisible to the Heavy as long as he does not shoot (his bullet will show). This is
passive invisibility.
P3: The Spy attempts to backstab the Heavy, but the Heavy is immediately aware of the Spy, as his animation is not covered by his passive invisibility mechanic.
P4: With a quick reaction, the Heavy kills the Spy.
So What is the Problem?
A casual Spy will grow used to the passive invisibility mechanic in the game. Trying to stab will remove the staple of Spy gameplay of being invisible. Any Spy trying to stab someone whom is, from their view, unaware of them, will use passive invisibility either with the Revolver or Knife... but the Knife instantly removes his surprise factor by having
no passive invisibility while in the stab animation. Against both low leveled and high leveled players, the Spy gives his position away; and is punished before the Knife hits or misses.
So What is a Solution?
Older versions of GG2 had the Spy
passively invisible while stabbing. A good Spy can stab behind a group of focused players and skillfully predict their movement/sight and make an important kill. If the Spy misses, his Knife will make a *click* sound and the Knife particles will show from any angle, which reveals him and his possible escape route. Even if the Spy misses, he still is relatively hidden, as he immediately cloaks, and is still given a fair chance to not be noticed, or juke the now aware players with movement quickly being allowed again.
This should be a possible scenario:

P1: A Spy cloaked is invisible from enemy players regardless of where they look. The Heavy is unaware of the Spy's presence.
P2: Even while uncloaked, the Spy is invisible to the Heavy as long as he does not shoot (his bullet will show). This is
passive invisibility.
P3: The Spy attempts to backstab the Heavy, but misses and gives off the Knife particles towards the end, and a *click* sound.
P4: The Heavy notices this and turns to shoot the Spy, but more time, and less obvious clues towards him result in his escape to cover.
I guess this can work with a server side plugin. This can also be moved to Feature Requests, but I posted here first for a) options & b) actually have a chance to be implemented in some way.