First of all this isn’t an original idea, I read something somewhere and will definitely go pull the source. The general theme was that as paper bitcoin increase(etfs,dats etc) there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?
Maybe you are assuming that with the drop in transactions, miners' revenue will drop. And nobody will want to continue or invest in a business where they struggle to profit. This might reduce the number of miners and might affect the decentralisation of Bitcoin. Transactions will continue, but it has reduced over the years as people focus more on using Bitcoin as an asset rather than a currency.
Bitcoin is a neutral asset; hence, people are free to use it the way they want. We cannot stop institutions from investing, nor people from putting money in ETFs. As Bitcoin becomes more stable, I guess the use for payments will also increase.