Covers actually fall under "Derivative works" as part of Fair Use, so it isn't against copyright or anything to perform them or even post them online.

However, SE is a Japanese company and Japanese copyright law is ridiculous and companies like AVEX are completely INSANE about throwing out copyright claims at people that even remotely seem to be copying their work.

I know that the ToS update is most likely just a SE "covering their butt" from a legal angle but the threat to ban users for playing covers of third party music is incredibly concerning. Why even bother putting the ability to play anything in the game if you're just gonna tell people they can't play anything but FFXIV music or original works. Heck, we can't even play the three THEME SONGS because they're the property of Nobuo Uematsu. It's confusing and weird to me.