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?
In my opinion, "paper bitcoin" like ETFs does make on-chain transactions a bit quieter because most trading is only recorded internally by the custodian. But that's not necessarily a bad thing; on the other hand, BTC remains just as scarce. The difference is that small transactions on L1 will become rarer, with large settlements between institutions becoming more common. So the fee market isn't disappearing, it's just changing its form.