Having more traders is better as the spread will be tighter, but margin creates too much swinging. Especially in a price fall where you get mass liquidation due to panic.
Uhhh.. I'm not a market genius, but I'm pretty sure currency traders create liquidity, not take it away.
If anything we need more traders to close the bid-ask spreads in all of the exchanges. The huge spreads between bitcoin exchanges is what is the problem. We also need more futures trading to create more predictability in the price of bitcoin and give those futures traders as much margin as the exchange can handle.