There are a lot more variables and headaches in maintaining a large digital library throughout a person's lifetime. With physical, there is only one barrier: keeping your system in working order. And that's a hell of a lot easier in the long run.

Physical games sell tens of millions of copies a year, likely even hundreds of millions, no way that is niche.
Plus, if we remove digital only games from the numbers, as well as PC, then I'd wager that physical still sell more than digital on Switch + PlayStation, and possibly even if Xbox is included there.

For me, it depends on the game to some extent. Smaller indie games, or old retro re-releases I have lesser issues with buying digital, but in general I prefer physical. I bought Streets of Rage 4 digitally, but only because there was no physical edition at launch. Yesterday, however, I saw the physical edition and I consider buying that as well. Same story with Sonic Mania. Also, I wanted Mega Man 11 physical but Capcom only released a digital edition in Europe.

Always physical when I have the choice to do so. Almost all my digital games are smaller games whose publishers couldn't afford to release physically.

I don't get the "lack of ownership" in reference to digital games. I had my ps4 digital games on an external. I put that external on my ps5 and starting playing. I didn't have download again and I have backups. Pretty similar to owning a disk. I don't think digital works the way people think it does. Except for Nintendo, they are archaic and link digital to hardware and not an account. At least they did with the wii u.

Can you sell the games?

If digital games were usually more expensive than physical games, then I'd buy much more physical games.

In reality, however:

The majority of games are cheaper digitally when you have a bit of patience. In most cases they have their price cuts earlier and the price cuts are deeper... only for a limited time of the sale, but nowadays these digital sales are repeated more and more freqentially. Reselling is an advantage for physical games, but for people who keep all their games anyways, this advantage doesn't matter much to them.

Also most digital games which were "taken offline" (not longer offered in the digital store) stay in your digital library and can still be redownloaded and played. Much more physical games aren't available to buy anymore than digital games... most older games aren't available anymore in physical stores (shelf space is limited and expensive) and can only bought used for high "collector's prices" while the same game is very cheap as digital version.

Multiplayer modes which are taken offline affect the buyers of the digital and physical versions equally.

Nevertheless I like to keep my options open, so if there are console versions with and without access to physical games, I get the version with optical drive / module slot.

My issue with Switch digital is that I can't just put my micro SD card into a different Switch and play the games downloaded on it. For whatever reason the card only works with the first Switch it's used with. Bringing over my library to my v2 Switch was ultimately still very easy with zero issues.

The digital software on the Switch is linked to your account. I just turned on my old v1 Switch and after an update I was able to download any game I bought on the v2 Switch through the eshop. They aren't on the homescreen if you bought them on another Switch but show up when downloading. You can even download games on more than one Switch despite buying it only once, which suprised me. You only can't play the same game simultaneously on two Switches through the same account. If you made one Switch your main console a game you bought through that account can only be played through that account on your non-main console.

What I find puzzling is, now looking at my old Switch, is that it shows the exact same playtime numbers that my newer Switch shows, which suggests that it's actually linked to my Nintendo account and not the hardware as I thought, but when I first linked mx account to the new Switch it showed all of these playtimes at zero. It made a hard reset. Maybe they've updated how it works since then.

No idea.  I think yes with Steam, but don't know. 

Nintendo is my favorite developer but I cannot justify their digital policy.  Sony is a decade ahead.  I can download digital games on multiple playststion units without calling Sony.  Plug and play from an external.