If tether was collapsing people would probably panic a bit and try to exit crypto for normal money. It's not certain though.

Because demand for Tether would not actually increase.

BTC holders would not look to exchange for Tether in the case Tether turned up unbacked. If BTC sellers were to sell they would exchange for other cryptocurrencies or more likely other stablecoins that are actually auditted.

If Tether goes does, and people try to exit to USD via Bitcoin, then the few exchanges that still trade Bitcoin for USD would be overwhelmed and would run out of liquidity, causing Bitcoin to drop as well.