I am extremely sorry for replying this late. I agree with Hazy Jane completely. I have been the president of postgraduate society as well as the postgraduate officer while I was a PhD student for 3 years. I strongly recommend you to get a documentary evidence of your condition and present it to your PhD supervisor through proper channel. I think once he knows this information he will think of an alternative of supervising you instead of taking an extreme decision of demoting you. I am pretty sure he will think of something to keep you as PhD student otherwise he can be answerable to severable committees. But yes for those you have to put your case on the table.

If you don't continue with PhD then please don't despair. PhD basically equips a person for conducting independent research. This something you can aquire even if you work volunatrily with an academic and publish. Obviously to support yourself you will have to work but then you won't be technically a student so you won't be obliged to meet deadlines.

Finally, think of part-time PhD. Seriously, PhD is overrated. Just publish you will be in academia forever.

Hope this helps.