The short answer is yes: despite both posing little threat and not really trying to offer one, American settler colonists thought the Ghost Dance was a real threat. But this was true mainly in a specific time and place.

Americans began to read about the “Ghost Dance” or the “Messiah craze” as it was often called in 1889/1890 newspapers, about a year after Wovoka/Jack Wilson began to have his visions. Newspapers breathlessly reported on how tribe after tribe began to indulge in this, noting how it spread to nearby and faraway reservations. They consistently misunderstood the tenets of the theology and interpreted it as a hostile religion bent on exterminating the white man, resurrecting fallen indigenous Americans, and so on.

You need to read these in the context of the racism of the time. Americans thought that Indians were destined for a slow and steady oblivion. The “good” side of the mainstream thought that they ought to be assimilated into white society and their culture erased forever; the “bad” side of mainstream thought this was a fools’ errand. Closely tied up with this was the twin understanding that Indians were innately hostile and that American frontiersmen had to prove their mettle by defending the homestead. You can see this in the language of the time—people consistently termed the idea of an indigenous rebellion an “outbreak.”

The rising of an “Indian Messiah” was understood to be a provocation for an outbreak. Newspapers especially began to fixate on this when it came to the Lakota Sioux, who had only recently been subdued, and were of course the subject of the most famous American frontier legend, Custer’s Last Stand at the battle of Little Bighorn. Despite the fact that the Lakota’s horses had already been confiscated in the previous peace treaty, the “Messiah craze” was widely understood to be driving them into a frenzy, and that they would possibly attack and kill neighboring settlers. This was amplified by “yellow journalism”—or what we in the modern age would probably call “fake news”—the practice of newspapers to reprint or plagiarize (with or without attribution) reports by other newspapers, neither of which probably had a reporter on the scene. Stories began to spread that Ghost Dancers believed the dance and the eponymous “ghost shirts” would protect them from bullets.

(It is unclear whether or not these “ghost shirts” actually existed. The earliest scholarship gives them a lot of benefit of the doubt. Later scholarship is more mixed. Note more generally, however, that the general nonviolent ideology of the Ghost Dancers—Lakota and others—is no longer disputed by modern historians, due especially to some interesting archival sources only rediscovered in the last twenty years.)

This escalated further, as famous Lakota were implicated in endorsing/not endorsing the Ghost Dance (the latter wasn’t exactly taken as exonerating evidence), especially the legendary Sitting Bull (one of the leaders in Little Bighorn). Yellow journalism repeated stories about supposed Indian plots to trap and kill military soldiers, supposedly overheard from Indian scouts.

Meanwhile, the Indian Agents in charge of the reservations tried desperately to keep a handle on the situation, even as settlers called for the Army to be deployed. Eventually, the military did deploy to the Lakota reservation at Pine Ridge.

It seems most likely that the Army was itching for a fight pretty much regardless of what went down. (Notably, one of the units deployed to Pine Ridge was the Seventh Cavalry, formerly Custer’s unit.) Tensions were already high when local Indian police assassinated Sitting Bull; they got higher when Chief Big Foot led a band of starving, freezing Lakota across South Dakota, hoping to find food and shelter at Pine Ridge. The Seventh Cavalry moved to regulate their approach, and confiscated their weapons. Mid-confiscation, a gun went off (most likely in a struggle between a young Lakota warrior and an army private trying to secure it), and the Army slaughtered the Lakota with repeating cannon. It was a few days after Christmas.

(There were some wounded on the US side; they were almost certainly entirely from friendly fire. The Army awarded over twenty Medals of Honor for participation in the massacre.)

The Ghost Dance, then, was absolutely a trigger here, and whites definitely thought it was a genuine threat. But this is only one of several causes; the US news media only really thought it a threat because it was happening on the Lakota reservation. This is almost certainly because of the recency of the Sioux Wars, the fact that Custer had been martyred only fourteen years before, and that even after these wars, the Lakota were probably the most powerful tribe within American borders. Racism played a huge role as well, as did the amplification by careless newspaper reporting.

And notably, outside the Lakota area, basically nothing untoward happened. The Ghost Dance continued to be practiced for decades after Wounded Knee. It was largely suppressed on Pine Ridge and other Lakota reservations, but there were numerous dances in the Oklahoma/Indian Territory reservations in the years immediately after; Wovoka continued to receive indigenous representatives near the Paiute reservations, and large dances were still held there and across the Southwest at least into the 1920s.

No military effort was made to stop these. Note that Wovoka himself was never under threat from military or police; he lived a free man until his death. Americans largely considered the movement to be dying/vanishing/ending. The anthropologist James Mooney, the first to study it, ended his book with Wounded Knee. More generally, it fit into a narrative that the Indians were vanishing—the Ghost Dance was seen as a “last gasp” of Indianness. Because this was (and is!) such a powerful trope, the newspaper reports well into the 1920s say the exact same thing—every iteration of the Ghost Dance was presented as the last gasp of a dying race.

So, to summarize:

Yes, it was seen as a real threat—especially among the Lakota—but this largely went away after Wounded Knee. This brief panic was almost entirely stoked by yellow journalism, and probably gained credence because of the recent history of the US conflicts with the Lakota.

For further reading, the best overall treatment of the ghost dance is Louis Warren, God’s Red Son. A couple of pieces that deal with the newspaper-stoked panic include Hugh Reilly’s The Frontier Newspapers and the Coverage of the Plains Indian Wars, and Oliver Knight’s Following the Indian Wars.

Here are some digital newspapers that are illustrative of the coverage:

(top, 5th column) https://chroniclingamerica.loc.gov/lccn/sn99062034/1890-10-22/ed-1/seq-1/ ;

(middle, final column) https://chroniclingamerica.loc.gov/lccn/sn84036012/1890-10-21/ed-1/seq-1/ ;

https://chroniclingamerica.loc.gov/lccn/sn2001063133/1890-11-06/ed-1/seq-2/ ;

https://chroniclingamerica.loc.gov/lccn/sn99062034/1890-11-22/ed-1/seq-1/ ;

(middle, 3rd column -- note the first one is blacked out) https://chroniclingamerica.loc.gov/lccn/sn84022137/1890-11-26/ed-1/seq-2/ ;

(second column) https://chroniclingamerica.loc.gov/lccn/sn99068076/1890-11-28/ed-1/seq-1/ ;

(first column) https://chroniclingamerica.loc.gov/lccn/sn2001063112/1890-11-28/ed-1/seq-2/ ;

(middle 1st column) https://chroniclingamerica.loc.gov/lccn/sn99062858/1890-12-20/ed-1/seq-2/ ;

(see in particular top, 5th column) https://chroniclingamerica.loc.gov/lccn/sn98062890/1890-12-25/ed-1/seq-3/

(edited to make clear which locations go with which newspapers)