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Originally Posted by Ajax
The present market cap of crypto in no way reflects how much fiat currency has been injected into it. The cap simply shows the current trading price of all coins. In a correction, the cap can shift downwards by billions in minute.
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This I understand.
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A large amount of that market liquidity is provided by Tether, which represents real dollars. If confidence in Tether/Bitfinex is lost it will create a panic selling environment which would likely drain the reserves of all major exchanges.
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This I think is overstated. I'll admit that in market volume Tether punches above its weight, but it still accounts for only about 10% of the daily trading volume.
If Bitcoin drops in value, there are plenty of people waiting with cash in hand to take that opportunity to get into the market.