Tether functions as sort of the reserve currency of crypto. Many exchanges don't even offer fiat money or banking connections - to use them, you have to send Bitcoin in from another exchange or a personal wallet, then you can convert it into Tether or other altcoins. People who are "getting out of crypto" by selling Bitcoins because they think the price is gonna drop oftentimes are actually buying Tethers. When 80% of crypto trading is denominated in your currency, there isn't really a bottom to fall to.
To actually exit Tether, most of these people would have to buy Bitcoins or another cryptocurrency accepted by most exchanges, register for the account verification processes there (every exchange that handles fiat money has the same KYC procedures as banks, i.e. take a picture of yourself and your driver's license and wait a couple days while an employee manually verifies it), transfer your Bitcoin to the other exchange, sell it to USD, and then move it out to a bank account. That takes time and a lot of hassle. We'd expect to see a rise in the price of BTC at USDT-based exchanges as Tether holders need to convert to Bitcoin to get out, along with a fall in BTC at fiat exchanges as they sell that Bitcoin. To some extent this is happening (Coinbase Pro's BTC price is almost $100 less than Tether-only exchanges like Binance or Bitfinex), but it's less severe than I would expect from a true run on the bank. Most Tether holders probably figure they'll take their chances because the hassle of getting out is worse than the possibility of losing their investment.
Reserve currencies can go a long time before people finally run for the exits. The US dollar hasn't been backed by anything since 1971 and is still ticking strong.
To actually exit Tether, most of these people would have to buy Bitcoins or another cryptocurrency accepted by most exchanges, register for the account verification processes there (every exchange that handles fiat money has the same KYC procedures as banks, i.e. take a picture of yourself and your driver's license and wait a couple days while an employee manually verifies it), transfer your Bitcoin to the other exchange, sell it to USD, and then move it out to a bank account. That takes time and a lot of hassle. We'd expect to see a rise in the price of BTC at USDT-based exchanges as Tether holders need to convert to Bitcoin to get out, along with a fall in BTC at fiat exchanges as they sell that Bitcoin. To some extent this is happening (Coinbase Pro's BTC price is almost $100 less than Tether-only exchanges like Binance or Bitfinex), but it's less severe than I would expect from a true run on the bank. Most Tether holders probably figure they'll take their chances because the hassle of getting out is worse than the possibility of losing their investment.
Reserve currencies can go a long time before people finally run for the exits. The US dollar hasn't been backed by anything since 1971 and is still ticking strong.