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It would rise as priced in tether, with tether depreciating against the dollar. You will see larger spreads between tether exchanges and dollar exchanges, which already regularly grow into the hundreds.

If people were holding tether because they wanted to be flat with respect to the cryptocurrency market, they will likely sell their cryptocurrency on a dollar exchange, suppressing prices there.

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btc would rise in terms of the real USD as well because the demand for it would increase.

I suppose it's possible, but holding all else equal? I don't immediately see why dollar demand would increase in the event of a tether collapse.

Dollar prices will adjust as BTC->Dollar and Dollar->BTC flows change. Dually the Tether prices. The only thing that keeps these prices in line is a Tether/Dollar arbitrage, but that arbitrage will slow and halt as people flee tether.

If anything, I would guess that a sudden increase in selling pressure from people doing Tether->Crypto->Dollar risks pushing people into a Crypto->Dollar fear feedback loop.

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