Because Tether's utility is as a legislatively advantageous on- and off-ramp for the whole crypto market.

Off-ramp: If people want to sell BTC or other volatile tokens because they want to realize profits, the obvious thing would be to sell for fiat (USD/EUR). But due to taxation and legislation this is often difficult. Stablecoins like Tether provide the utility of a low-volatility currency that fiat would fill. Main advantage is bypassing legislation.

This use is so common there is jargon for "Tethering up".

There also exist many debit cards that allow paying with stablecoins, increasing utility. The rise of DeFi and money markets for stablecoins also provides a good return on stablecoins while in theory being low-volatility.

On-ramp: If people want to buy a certain token they first go into Tether. This is usually for bypassing local legislation limiting the buying of a specific token or use of exchanges. This use is less common, I would wager.

Because of this wide-spread use of Tether, it's collapse would cause a liquidity crisis: people want to but cannot sell their Tethers for other tokens/fiat. Tether goes down from it's 1USD peg, triggering a run on Tether as people try to swap it as much as they can for anything else, driving down the price further. Meanwhile noone is willing to buy Tether. The theory proposed by OP, is that panic in the already volatile crypto market ensues, people exit for fiat where they can driving down prices everywhere. Trust in the whole market will be obliterated.

Personally, I haven't trusted Tether since the first BitFinex scandals and avoided like the plague. For my stablecoin needs, I use something that is audited and over-collateralized like DAIv2.

Because suddenly most of the bitcoin demand would stop which would make the price drop