I also have several non hosted wallets and several custodial wallets on crypto-exchanges. I mostly agree with your concerns but I am puzzled by the argumentation.

What does this sentence mean "Regulators have begun...indicating what may be a fundamental misunderstanding of their purpose.".

Can you list what are the "fundamental purpose" of self-hosted wallets are are being misunderstood? outside paying for transaction fees? What would be impossible without them?

Maybe your post would gain to have a chapter about it?

Thanks.