Could this make the price of bitcoin skyrocket? Maybe. Bitinstant will probably convert the bitcoins to dollars when a purchase is made.
There is no probably about it. You deposit BTC, they sell them and put the funds on your card. So it isn't a giant BTC sink which will cause the value to skyrocket.
Now there is always friction in any financial transaction. Take SR for example. If their volume doubles would the price of BTC rise? Everything else being equal? Yes. Why? There is a lag (friction) in the double conversion. Customer buys BTC, customer sends BTC to SR, SR sells BTC. The process isn't instananeous. Thus some amount of BTC are required to float that cycle. If the volume increases the amount of float increases and those coins become unavailable for other purposes. Totally out of my ass example numbers to illustrate the effect. SR does 100,000 BTC worth of tx per month. The time from USD -> BTC -> USD is roughly 3 days. That means ~10,000 BTC are "unavailable" for other purposes. Less supply, more demand, price rises.
BitInstant offering will likely have a similar (although probably smaller) effect. A miner may hold BTC longer simply because he can sell if/when he needs funds. Any merchant or service (even those selling back to USD) creates the same effect. Hopefully someday thousands or merchants and service providers and millions of years create enough demand for "float" that prices are higher and more stable.
It's refreshing to see sound economic analysis here. Way to go DeathAndTaxes. I'd add that in addition to the extra amount locked up in the time lag between purchase and selling, these cards should also make the spread narrower around the current exchange rate, which should eventually allow larger amounts of money to move through the BTC network.
