I also do think Tether is dodgy, but even if they weren't, the illusion would be the same – real money enters the market through the usual fiat onramps, then it gets traded for BTC. Since BTC/USDT is one of the most liquid markets, this often can result in new Tether being issued to trade with (potentially in a transparent way to the user) and as long as the other party does not redeem these new USDT they inflate the market cap

The question then becomes whether the fiat going in matches the new Tether being issued, and that can't be answered without a proper audit.