So, some people suspect that Tether is running fraction reserve and pumping BTC price, and they expect Tether to collapse at some point.
If this truly happens, what will be its effect on the cryptocurrency market? It seems there are a few different perspectives:
(1) Tether assets only comprise a little portion (under 5%) of total cryptocurrency market cap, so the effect on other cryptocurrencies is minimal. Only Tether alone will crash, just like the case of Bitconnect.
(2) Tether is not an ordinary cryptocurrency like Bitconnect, but it's used to run markets and buy other coins. Because Tether was used to buy bitcoin, and the fake Tether pumped Bitcoin price (if the conclusion of "Tether Report" is accurate), most Bitcoins purchased with Tether should be considered to have little value, and doesn't worth the price labeled.
So, bitcoin price will go down together with USDT. The % drop in BTC market cap should be close to the amount of Tether ever printed. But altcoins will not be affected, because most USDT was used to purchase Bitcoin instead of altcoin.
(3) Same reasoning as (2), but both bitcoin and altcoin price will go down, because many altcoins were purchased with the price-inflated bitcoin too. These altcoins are indirectly pumped with fake Tether. The % drop in total market cap of all cryptocurrencies should be close to the amount of Tether ever printed---and that means: 1. the % price drop in BTC should be lower than in (2), and 2. the % price drop of most coins will not be significant (maybe less than 15%) because the loss is distributed over all cyptocurrencies.
(4) Same reasoning as (2), but altcoins will crash along with BTC at even greater magnitude, not because of the reasoning in (3), but simply due to the mysterious correlation in altcoin price and BTC price (likely due to market speculation?). This price correlation can be seen in the past year, and it's quite strong.
(5) Exactly the same reasoning as (3), but instead of a 15% dip, the market will have a total crash, because of people's fear and panic sell, and plus some manipulation by whales.
(6) Instead of simply a price crash, the situation will be different on each exchange:
On the exchanges using USDT and no actual fiat (like Bittrex and Binance), USDT holders will find that the only way they can cash out fiat USD is first selling USDT for other crypto currencies like BTC and ETH. So, the BTC:USDT and ETH:USDT exchange rates will be pumped like crazy, as people bank run--not for fiat but for BTC and ETH.
However, on exchanges using only fiat USD instead of Tether (like GDAX/Coinbase, and p2p exchanges like Localbitcoins), the price will be stable, because they didn't touch Tether at all.
***If this is true, what will happen to the exchange rates of altcoins : BTC, on those Tether-traded exchanges? Will they be pumped together (because of trading bot action), or drop because of panic sell?
***On the Tether-traded exchanges, will the pump in BTC:USDT rate temporary or permanent? (I guess it's permanent because USDT will crash and lose the $1 value after all? And the exchanges might close USDT market afterwards?)
(7) Same reasoning as (6), but the fiat-traded exchanges like GDAX will see price crash, for the reason stated in (2) (3), and people's fear and panic sell. So, BTC:USD rate (the "real price") will free fall, but BTC:USDT rate will moon?
***And what happens to altcoin prices? Crash even harder than BTC?
(8.) Same reasoning as (6), but on the fiat-traded exchanges, crypto:USD rate (the "real price") will initially be temporarily pumped, because of some weird bot action---maybe some trading bots watch the price on other big exchanges (mostly trading Tether), misinterpreting the insane increase in crypto:USDT rate as "all coins mooning", and activate buy mode?
And after that quick short-live bot pump on fiat-traded exchanges, human traders realize what happened, then stop the bot and panic sell, sending the price free fall?
***And what happens to altcoin prices in this situation?
(9) The Tether collapse is not alone, but at the same time combined with other negative factors such as additional crypto-related tragedy (like government announces to collect crypto tax) or fake news, all at the manipulation of big bad whales in coordination with malicious governments. The overall effect will be the same as (7) -- a total market crash, with USDT value falling to zero.
(10) There won't be a sudden market crash, because Tether collapse will gradually happen in multiple stages, over a period of weeks, months or even years. The reasons:
- Many frauds get revealed this way.
- If any government agency decides to investigate Tether, the process will likely be long.
- There are too many factors involved in the Tether matter, reaching a firm conclusion is not easy.
During each stage, some news about Tether is released, either positive or negative, and market moves accordingly.
And it may be mixed with other cryptocurrency related events, causing further price swing.
Now there are 2 cases:
(10 a) If Tether collapse happens in weeks, its impact on market is more "concentrated" and intense. Tether collapse alone can cause a month-long or even year-long bear market, with multiple big price dips, combined with some small bull traps
, but the overall trend is down.
(10 b) If Tether collapse happens over years, its impact on market is dispersed over a long time, and diluted. So each stage, bad news about Tether will temporarily drag down the market, but long term trend is unpredictable.
And we are currently at the first stage...
So many possibilities.... I'm quite lost now.
What do you guys think?
AND don't forget the most important question: what actions should we -- the ordinary humble traders -- take, in such situations, to stay SAFE, minimize loss, or even possibly make big profit?? Panic sell all crypto for fiat immediately upon detecting the Tether crash? Sell for fiat NOW when the crash hasn't happened? Or HODL, with the possible danger of HODLing into a giant bag, or 3-year bear market? 
