With the recent rise of the price of Bitcoins I wanted to talk about a few factors that I think are helping contribute to this.
1) Lack of short selling
2) No liquidity rebates on many major exchanges.
The first one means that anyone who wishes to get into bitcoins or trade on the markets is going to be bullish from the start. Anyone who buys in at any price using fiat (i.e. USD) will need the price to go up to make money (on non liquidity rebate exchanges) and anyone who is a miner or has many coins will want the price to go up so will not have real incentive to keep the price steady or push it down. As such I do not believe these markets represent the real price of bitcoins.
Now, everyone else who just wants to use Bitcoins will have a harder time as a result of these two conditions. Merchants will have a hard time keeping up with the currency exchange risk and buyers will be constantly thinking they could have gotten a better price here or there.. etc.
I say the above because I want to bring light to how I believe a liquidity rebate (like the one offered by Bitfloor) help those trying to provide a market keep the price stable. Let say I am a market maker and I put an order out to buy bitcoins (and the exchange has no rebate). My order executes and I am charged a fee. This means that if I want to sell those same bitcoins I am already pushing the price up. However, if I am given a rebate for the order, I could turn around and sell the bitcoins at the same price or just 0.01$ higher and again look to get a rebate. By being constantly on the inside of the book with very large orders, I can pin the price better and still make a profit. This means that I can market make without the price having to move at all. In my opinion this is an important aspect of the liquidity rebate that helps price stabilize when short selling is not available.
Obviously there are other nuances here, but I just wanted to throw this example out there for people who do some trading to try out and think about. It may be great to see the price of bitcoin rise rise rise for some, but for others it makes their transactions harder to manage so stable markets have their benefit as well