For those who don't trade on margin, the existence of margin trading tends to exaggerate the peaks and troughs of the market. When prices are rising, it greatly increases the number of BTC that can be bought, causing the price to rise further. When prices are falling fast enough to force liquidations, it greatly increases the number of BTC that are being sold, which depresses the price further. I don't mind this, because it gives me more opportunity to buy very low and sell very high.
I think that's the rub: margin trading dramatically increases volatility.
I see cases where it obviously does. But if someone wants to make a bet that bitcoin will hold above the .15 level they can offer twice as much support if they double up, right? So now it's less likely to drop below .15, but if it gets below .08 it blows out even more. It seems if people's bets and leverage are not correlated it should roughly even out. But I don't know.