Also, we don't have a well functioning derivatives market for bitcoin. Once that is the case, adoption as a medium of exchange will explode.
I don't see how derivatives could help. Could you elaborate?
For one, merchants could hedge against the sudden sharp price drops that we have seen in the last months. As soon as a lot of merchants are doing this, it would also dampen the sharp price increases, since a fraction of speculators who expect bitcoin to rise would bet against the hedgers instead of buying bitcoin.