They can't compete? Well, let's apply SurFutbol's logic here - oh well, then they are not good enough and should play at a rec level.
Like it or not, someone is disadvantaged in this scenario. You would prefer it to be the natural born girl. I would prefer it to be the natural born boy who is choosing to transition.
You left out that you are also punishing the natural born girl who is transitioning since people are moving both ways. Key words: You are focused in on the people "who are transitioning" but I have yet to hear a good reason why....what's the rational? I agree there are winners and losers and it's all quite arbitrary who you assign to win or lose. My main point is for youth sports we don't care because we don't care about the overt cheaters, and I don't want to set up a system like in Utah where cis girls are targeted on suspicion of being transgendered. Until you police the cheaters (and I have yet to hear one of you say, yes absolutely let's police it, I'd be willing to have my DD drug tested), I really don't see anything to the fairness argument. Unless you are prepared to let the FTM remain in the female category for as long as they like, I really don't see anything to the biology argument. Unless you are prepared to catch the genetic abnormal, I don't see anything to the genetics argument. And unless you are prepared to advocate for height and weight limitations, I don't see anything to the safety argument here.
For the higher levels such as college I get the argument that there's no perfect solution here. But that leads you a conclusion you aren't going to like: separate leagues for both the trans and nonbinaries. If so, those scholarships got to come from somewhere.