This letter does not shed any light  on the Melungeons, nor does it mention any Portuguese Indians but it was  printed in the book of Amos Stoddard in 1812, two years after it was received. It is interesting, not in what he says, but in what he does not say.  Stoddard had wrote to him enquiring about these 'white Indians' that had been in Tennessee.  He writes back telling Stoddard what he knows but never mentions a  strange race of people, Portuguese, White, Indian or otherwise.  He is recalling from memory and notes the period of 1782 to 1810 but does not mention any  strange people or the name Melungeons.

John Sevier
Knoxville, Tennessee,
October 9th, 1810

To Amos Stoddard

I shall with pleasure, give you the information required, so far as my memory will now serve me, and the help of a memorandum I hastily took on the subject, of a nation of people called the Welsh Indians.  In the year 1782, I was on a campaign against the Cherokees, and during my route, discovered traces of very ancient fortifications.  Some time after the expedition, I had occassion to enter into a negotiation with the Cherokee Chiefs, for the purpose of exchanging prisoners.  After the exchange had been settled, I took an opportunity of enquiring of a venerable old chief, named Oconostoto, (then, and for nearly sixty years had been, a ruling chief of the Cherokee nation,) if he could inform me of the people that had left such signs of fortifications in their country and particularly the one on the bank of the Highwassee river?  The old warrior briefly answered me as follows;  

It is handed down by our forefather, that the works were made by white people, who had formerly inhabitied the country, while the Cherokees lived low down in the country, now callled South Carolina, and that a war existed between the two nations for many years.  At length, it was discovered, that the whites were making a number of large boats, which induced the Cherokees to suppose, that they intended to descend the Tennessee river.  They then collected their whole band of warriors, and took the shortest and most convenient route to the muscle shoals in order to intercept them down the river.  In a few days, the boats hove in sight, and a warm combat ensued, with various success for several days.  At length the whites proposed to the Indians, that if they would exchange prisoners, and cease hostilities, they would leave the country, and never more return; which was acceded to, and, after the exchange, parted in friendship.  The whites then descended the the Tennessee to the Ohio, and then down to the big river, (Mississippi) then up it to the muddy river, (Missouri) then up that river to a vey great distance.  They are now on some of it's branches; But they are no longer a white people; they are now all become Indians; and look like the other red people of the country:"  

I then asked him, if he had ever heard any of his ancestors say what nation of peole those white people belonged to?  He answered;  "I have heard my grandfather and other old people say, that they were a people called, Welsh; that they had crossed the great water, and landed near the mouth of Alabama river, and were finally driven to the heads of its water, and even to Highwassee river, by the Mexican Indians, who had been driven out to fheir own country  by the Spaniards."  

Many years past I  happened in company with a Frenchman, who lived with the Cherokees, and had been a great explorer of the country west of the Mississippi.  He informed me, " that he had been high up the Missouri, and traded several months with the Welsh tribe; that they spoke much of the Welsh dialect, and although their customs were savage and wild, yet many of them, particularly the females were very fair and white, and frequently told him, they had sprung from a white nation of people; also stated they had yet some small scraps of books remaining among them, but in such tattered and destructive order, that nothing intelligible remained."  He observed that their settlement was in a very obscure part of the Missouri, surounded with innumerable lofty mountains.  The Frenchman's name has escaped my memory, but I believe it was something like Duroque.  

In my conversation with the old chief Oconostoto, he informed me, that an old woman in his nation named Peg, had some part of an old book given her by an Indian living high up the Missouri, and thought he was one of the Welsh tribe.  Unfortunately before I had an opportunity of seeing the book, the old woman's house, and its contents, were consumed by fire.  I have conversed with several persons, who saw and examined the book, but it was so worn and disfigured, that nothing intelligible remained; neither did any one fo them understand any language but their own, and even that, very imperfectly.

You can read more about the Welsh Indians at the sites below.

Amos Stoddard
A Welsh Nation In American p 365

Pronce Madoc

OCONOSTOTA, head king or archimagus of the Cherokees.