> If USDT dies then BTC goes to like $500 on Binance.
Do you just mean that confidence will be so low that people will try to shun cryptocurrencies and dump their positions, or are you talking about another mechanism?
When people say that BTC is worth $30,000 on Binance right now, what they are really saying is that BTC is worth 30,000 Tether dollars (USDT) on Binance, because there's no mechanism on Binance to exchange BTC for US Dollars in a direct swap. You have to buy USDT and then use that USDT to buy BTC.* Basically USD -> USDT -> BTC. Today the ratio is 1 -> 0.998 -> 30,000, so in theory BTC priced at 30,000 USDT is currently worth 29,940 USD.
If the USD -> USDT relationship breaks and "USDT dies", then what happens is the prices goes 1 USD = 0.05 USDT, which means that 30,000 USDT worth of BTC on Binance [1] is now worth just $1,500 USD.
* You can buy directly with a credit card, but that's likely settled off-chain with a banking relationship. If you want to use a direct bank transfer, you have to buy a stablecoin first on Binance.
But to your original comment, shouldn't BTC go to 500 USDT but stay at a constant USD price (assuming no contagion to the rest of the crypto market which I mentioned above)?
Basically if you buy BTC using USD going through a random currency RC (USD -> RC -> BTC), the exchange rates BTC:RC and USD:RC shouldn't matter as long as they're constant. If they become volatile, I'd expect exchanges to stop trading these pairs, making these rates undefined. But if Tether ends up being stable at say $0.1, I don't see why the BTC:USD rate (going through Tether) would change.
There are also other stablecoins, I'm assuming that USDT is not the only one in use, so why would it impact the BTC:USD rate (again, forgetting about the contagion)? E.g. on https://coinmarketcap.com/currencies/bitcoin/markets/ there are several pairs defined, some directly with USD, some with DAI.
Edit: maybe you mean that as long as they pretend the peg still holds, people would just buy BTC with USDT, making the run worse?
No, literally. The price of lots of coins is specified in USDT on lots of exchanges so if USDT crashes then the price of coins relative to USD also crashes.
Now, would there be lots of manual intervention by exchanges to fix this as fast as possible, absolutely but that's the parents point.
Do you just mean that confidence will be so low that people will try to shun cryptocurrencies and dump their positions, or are you talking about another mechanism?