I think the obvious flaw in your argument is that the market is very underdeveloped for BTC exchanges. As with any other market, as competitors file in the bid/

I think the obvious flaw in your argument is that the market is very underdeveloped for BTC exchanges. As with any other market, as competitors file in the bid/ask spread will be squeezed significantly. See the currency market. Also...as positive network effects kick in as Marc said, and more merchants accept it, there will be less incentive to convert to USD. That's where the real value is. As the network of merchants grows, then the transaction costs go to 0 - i.e. in a BTC to BTC world. I expect companies to come up with products/services that allow you to 'lock in' prices without having to do conversions immediately (kinda like options). So you can expect to see much more innovation in this space. Either way...what is clear is that the current spread is the worst that it will ever be because as the network grows that will shrink.