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?
From what we have seen so far, the approval of bitcoin ETFs have caused significant drop in onchain transactions as shown by empty mempool afterwards. Going by that, the answer to your question will be a yes but on the aspect of impacting negatively on transaction fees, I don't think it is correct because reduction in on-chain transaction have also lead to a significant drop in transaction fees.