The number of traders is increasing more than before as more people are generally becoming more interested in ways to become more financially independent and as thus in search of skills like trading.
Does the number of traders directly affect the volatility of the market? If it does, can we assume that trading was easier before with less traders (less volatility) than now when there are more traders, and the market more volatile?
Yes number of traders will affect the volatility of the market but as a well equipped trader, you should be able to make perfect not minding the volatility of the market. The number of traders getting involved in cryptocurrency trading shouldn't be your concern as it is always going to increase because adoption is increasing and more people will want to make money without holding for very long and they can do that through trading. The more traders we'll have and the more money and maturity that gets into the market is the less volatile the market will become therefore the cryptocurrency market will stop being very volatile and entertaining as it's and by then institutional traders would had become a permanent part of the market. There'll still be some volatility but it won't as unpredictable as it's presently.