Joshua Gans, Nitika Bagaria, Jed Armstrong, Evangelos Constantinou,  Jacob Carrasco

We’d like to thank Julian Kurtzman, Mira Sands and Carol Shou for their research support

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Introduction

Cryptocurrency exchanges have transformed the way individuals and institutions buy, sell, and trade digital assets. As these platforms have grown in scale and complexity, they have inevitably attracted scrutiny from antitrust enforcers and private litigants. Yet defining the relevant market for a crypto exchange remains one of the most challenging preliminary steps in any competition case involving digital assets. Courts have not yet developed a settled approach to this question, and the few cases to have addressed it offer only fragmentary guidance.^[1]

This article offers practical guidance for antitrust practitioners grappling with market definition and assessing market power in the crypto exchange sector. The task is not merely academic. As the United American Corp. v. Bitmain litigation demonstrated, the failure to articulate a plausible product market can be fatal to an antitrust claim.^[2] At the same time, defining the market too broadly risks overlooking genuine competitive constraints, while defining it too narrowly may exaggerate market power. Getting the analysis right requires a careful understanding of the underlying technology, the diversity of participants, and the unusual competitive dynamics of these platforms.

Understanding the Crypto Landscape

Before turning to the tools of market definition, it is worth pausing to map the terrain. The crypto ecosystem comprises several distinct layers, and conflating them in a market definition risks imprecision at every subsequent stage of analysis. Three layers must be carefully separated: the digital asset being traded (a coin or token), the trading venue or execution service through which trading occurs, and any adjacent or bundled services such as custody, wallet provision, fiat on-ramps and off-ramps, API and OTC access, staking, and other offerings.

Coins, Tokens, and the Assets Being Traded

Digital assets fall broadly into two categories. Coins are native currencies of independent blockchains. A blockchain functions as a public ledger that records all transfers of a given coin, from origination through the most recent transaction, and is maintained by independent verifiers using consensus algorithms. Bitcoin and Ethereum are the best-known examples. Coins differ from one another on several dimensions, including network fees,^[3] total supply (some coins, like Bitcoin, are capped,^[4] while others, like Dogecoin, are not), the consensus mechanisms they employ, and the size and security of their networks.^[5]

Tokens, by contrast, are digital assets built on top of existing blockchains. Rather than functioning as currency, tokens typically represent some other form of value or entitlement. A token might represent a governance right in a decentralised protocol (such as Uniswap’s UNI token), a stake in a gaming ecosystem (such as Decentraland’s MANA), or even a share-like interest in a digital venture.^[6] One particularly important subcategory is stablecoins, which are tokens pegged to a fiat currency such as the U.S. dollar. USD Tether (USDT) and USD Coin (USDC) are prominent examples. The Tether and Bitfinex Crypto Asset litigation illustrates the competitive significance of this distinction: the plaintiffs in that case argued for separate antitrust markets for stablecoins and for cryptocommodities such as Bitcoin, on the ground that stablecoins are designed to maintain a stable value relative to fiat currencies and therefore serve fundamentally different economic functions.^[7]

What Crypto Exchanges Do

Crypto exchanges are the platforms that allow users to trade coins and tokens. They compete across numerous dimensions: the geographies they serve, the range of assets they list, their compliance and security credentials, the payment methods they accept, and the transaction fees they charge. Many exchanges also offer ancillary services, including custodial wallets, portfolio trackers, payment gateways, savings and lending products, educational content, and tax documentation tools. Whether and how these ancillary services should be included in the relevant product market is itself a significant question, to which we return below.

A further structural distinction is whether an exchange operates in a centralised or decentralised manner. A centralised exchange (commonly abbreviated as "CEX") functions much like a traditional financial intermediary. It holds users’ funds, matches buyers and sellers through its own order-matching systems, and oversees transactions on behalf of its users. A decentralised exchange ("DEX"), by contrast, replaces that intermediary function with code. DEXs run on blockchain-based smart contracts that automatically match and execute trades directly between users, without any central authority holding funds or controlling access. The competitive relationship between CEXs and DEXs is itself a question with significant implications for market definition, as we discuss further below.

The Diversity of Exchange Users

One feature of the crypto exchange sector that makes market definition particularly complex is the heterogeneity of users. At one end of the spectrum are retail investors, typically the most casual and least technologically sophisticated participants. These users tend to prioritise ease of use, transparent fee structures, and the reassurance of a regulated, trustworthy platform. At the other end are professional and institutional investors, who require high levels of security, assured regulatory compliance, and access to OTC desks or API connectivity to execute large-block trades with minimal market impact. These users demand deep liquidity and robust infrastructure.

Between these poles sit sophisticated individual traders, who trade at higher volumes and prioritise low latency, narrow spreads, advanced charting tools, and a broad range of listed assets; and technologically advanced users, who may be comfortable trading without conventional exchange infrastructure, who seek out riskier assets such as meme coins or NFTs, and who place a premium on anonymity, permissionless access, and self-custody. These user groups exhibit distinct substitution patterns, face different switching costs, and respond differently to changes in fees and quality. As we explain in the next section, that heterogeneity has direct consequences for the boundaries of the relevant antitrust market.

Defining the Product Market

With this landscape in view, we turn to the practical task of defining the product market. As in any antitrust matter, the exercise begins by identifying the focal product and its substitutes. The focal product will depend on the specific conduct or transaction at issue. In the Tether and Bitfinex litigation, for instance, the case centred on allegations that a stablecoin issuer and an affiliated exchange used their dominance in the stablecoin market to manipulate prices in the broader cryptocurrency market. There, the relevant markets were the market for stablecoins and the market for cryptocommodities; the need for a separate exchange market did not arise because the two entities were under common ownership.^[8]

Where the focus is on the exchange itself, the central question is whether the market should be defined around a particular asset or trading pair (such as spot Bitcoin trading) or around the broader suite of exchange services. The answer is necessarily evidence-driven and depends on the substitution patterns relevant to the user group and use case at issue. Where users need access to a specific digital asset to achieve a particular objective, whether payments, hedging, or speculation, substitution may be limited to exchanges that list that coin or token, which would support a narrower market definition. Conversely, where the alleged harm relates to ancillary services such as custody, wallet functionality, compliance tooling, or data provision, separate product markets for those services may be plausible, even though those services are complements to the core trading function.

The CEX/DEX Boundary

Whether centralised and decentralised exchanges belong in the same relevant market is a question that does not admit a single answer. For some users, particularly technologically sophisticated individuals who value self-custody and permissionless access, a DEX may be a close substitute for a CEX. For other users, notably institutional investors who require regulatory compliance, insured custodial arrangements, and fiat banking integration, the differences between a CEX and a DEX may be decisive. The practitioner must examine the specific user population at issue and evaluate the degree to which, in practice, those users regard centralised and decentralised venues as interchangeable options.

Customer Heterogeneity and Price Discrimination

As noted above, the diversity of exchange users is not merely a descriptive observation; it has direct implications for market definition. Different customer groups may have materially different substitution sets. A retail user comparing a handful of regulated venues and an institutional investor evaluating CEXs, OTC desks, and agency execution providers are engaged in fundamentally different competitive assessments. Different user groups also face different switching costs, arising from KYC onboarding, fiat payment rails, custody arrangements, and API integration. And different groups face different effective prices: a retail user paying taker fees confronts a very different cost structure from an institutional participant benefiting from maker rebates, volume-based tiering, and negotiated arrangements. Where these differences are sufficiently pronounced, they may support the definition of narrower markets corresponding to distinct customer segments, particularly if exchanges can and do price discriminate among groups.

Applying Price-Based Tools to Crypto Exchanges

Antitrust practitioners routinely employ price-based tools to identify closer substitutes and delineate the relevant market. Two of the most widely used are the Hypothetical Monopolist Test (“HMT”), which asks whether a hypothetical monopolist controlling a candidate market would find it profitable to impose a small but significant non-transitory increase in price (a “SSNIP”), and the Brown Shoe indicia, which include the existence of distinct prices and measures of consumer price sensitivity.^[9]

Applying these tools to crypto exchanges presents practical challenges. Exchanges typically compete on multi-part pricing structures. The fees a user pays may include transaction fees structured around a maker/taker framework (where makers, who provide liquidity by posting limit orders, generally pay lower fees than takers, who consume liquidity by placing orders that match immediately), the bid-ask spread on the exchange, and fees for depositing or withdrawing fiat currency. In light of this complexity, the relevant “price” for market-definition purposes may need to be construed as an all-in trading cost for a set of representative users, rather than a single fee component.

Moreover, because exchanges also compete on non-price dimensions such as security, latency, and fraud protection, a quality-adjusted version of the SSNIP (sometimes referred to as a “SSNIPT,” incorporating a worsening of other terms^[10]) may be more appropriate for capturing the full range of competitive variables. An exchange that degraded the security or speed of its platform without changing its headline fees would still be worsening the offer to its users, and the question of whether users would switch in response is central to defining the market.

Two-Sided Platform Considerations

A further complication arises from the fact that crypto exchanges are two-sided platforms: they facilitate transactions between buyers and sellers, and the value of the platform to participants on each side depends on the participation of users on the other side. In some circumstances, the effect of a hypothetical price increase must be considered on both sides of the market simultaneously. The burden of such an increase may also fall unevenly. An exchange seeking to increase liquidity, for instance, might raise fees for sellers converting crypto assets to fiat currency while holding fees steady (or even reducing them) for buyers entering the market. The practitioner must attend to these cross-side dynamics when applying the HMT to crypto exchanges.

Assessing Market Power

Once a relevant market has been defined, the next step is to assess the market power of the entities within it.^[11] Market shares serve as indirect evidence of market power, and the 2023 Merger Guidelines emphasise the use of concentration measures, including the Herfindahl-Hirschman Index (HHI), to evaluate whether a market is highly concentrated.^[12],[13]

Choosing the Right Market Share Metric

The crypto exchange industry has not yet converged on a single, widely accepted measure of market share. Several candidates present themselves, each with distinct advantages and limitations that the practitioner should weigh in light of the specific facts.

Notional trading volume, defined as the total value of trades executed on an exchange, is perhaps the most intuitive measure and has been used in the Tether and Bitfinex litigation to measure stablecoin market shares.^[14] It reflects economic activity directly but does not capture user stickiness or the degree to which an exchange retains its users over time. Transaction count, the raw number of executed trades, is simple to measure but fails to distinguish between large and small trades, potentially overstating the competitive significance of platforms that host many low-value transactions. Active user metrics (monthly or daily active users) capture adoption and the strength of network effects but may be inflated by users who engage in only trivial activity, and may undercount loyal users who trade infrequently but in large volumes. Assets under custody, which measure the total holdings an exchange manages on behalf of its users, capture user stickiness and the liquidity depth of a platform, but this data is generally not publicly available. Finally, fee revenue directly measures an exchange’s economic return from the market, but it is sensitive to differences in fee structures across platforms and may therefore distort comparisons.

The choice among these metrics will depend on the theory of harm, the data available, and the specific competitive dynamic at issue. In many cases, using multiple metrics as a cross-check yields the most reliable picture.

Barriers to Entry and Expansion

Market share data alone cannot establish market power. As the 2023 Merger Guidelines emphasise, the significance of concentration depends critically on the ease with which new entrants can contest the market and existing rivals can expand. In the crypto exchange sector, several factors bear on this question.

On the technology side, much of the infrastructure underlying crypto trading is open-source and can be "forked" to create new projects.^[15] In principle, this should facilitate entry. But the ability to replicate code is not the same as the ability to compete effectively. A new entrant must also attract sufficient liquidity to offer competitive execution quality, build a reputation for trust and security, obtain the necessary regulatory permissions, establish banking relationships for fiat on-ramps and off-ramps, and develop connectivity with institutional participants.^[16] These requirements may collectively constitute a meaningful barrier, even where the underlying technology is freely available.

Network effects further complicate the picture. As an exchange grows, it benefits from indirect network effects: more buyers attract more sellers, and vice versa, creating a virtuous cycle that deepens liquidity and improves execution quality.^[17] However, these positive effects are partially offset by negative direct network effects arising from congestion. As transaction volumes increase, network validators can process only so many transactions within a given time, leading to higher latency and elevated transaction fees.^[18] The net competitive impact of these countervailing forces will be context-specific, and the academic literature suggests that the presence of negative network effects may help sustain competitive conditions in crypto markets even where positive network effects are strong.^[19]

Multi-Homing and Switching Costs

An important mitigating factor against the exercise of market power is the widespread practice of multi-homing. Research and industry commentary suggest that it is common for crypto exchange users to maintain accounts on multiple platforms simultaneously.^[20] Users multi-home for a range of reasons: to diversify counterparty risk, to access coins or tokens listed on one exchange but not another, to take advantage of differential liquidity conditions, to execute leveraged positions in opposite directions across platforms (where a single exchange may not permit this), to use exchange-specific trading tools and interface features, and to capture arbitrage opportunities arising from temporary price discrepancies.^[21]

The prevalence of multi-homing has direct implications for the assessment of market power. To the extent that users can and do shift their trading activity across exchanges in response to a change in fees or quality, the ability of any single exchange to exercise market power is constrained. Multi-homing reduces switching costs and lowers barriers to entry and expansion, because an entrant does not need to persuade users to abandon their existing platform; it needs only to convince them to add a new one.

Regulation as a Barrier to Entry

Finally, regulatory requirements represent a significant barrier to entry in many jurisdictions.^[22] The United States imposes some of the world’s most stringent oversight of crypto exchanges, with agencies such as the SEC, CFTC, and FinCEN enforcing rigorous compliance standards. Meeting these standards forces exchanges to build extensive compliance, reporting, and surveillance infrastructure that closely resembles the operational footprint of a traditional securities exchange. Other jurisdictions, such as Singapore, the UAE, and parts of the Caribbean, maintain lighter regulatory regimes. The European Union also maintains a demanding framework. Ultimately, in the largest and most commercially significant markets, the cost and complexity of achieving regulatory compliance represent a meaningful obstacle for prospective entrants.

Conclusion

Market definition and market power assessment in the crypto exchange sector are still in their infancy. Courts have not yet developed a consistent framework, and the handful of cases to have addressed the question have done so only in a preliminary or fragmented way. But the underlying analytical tools are well established. The challenge lies in adapting those tools to a sector characterised by rapid technological change, unusual platform economics, heterogeneous user populations, and an evolving regulatory landscape.

Practitioners who approach these questions with care, attending to the distinctions among digital asset types, the structural differences between centralised and decentralised venues, the diversity of user needs and substitution patterns, and the particular features of multi-part exchange pricing, will be well positioned to construct market definitions and market power assessments that are both analytically rigorous and persuasive to courts and regulators. The framework set out in this article is intended to assist in that effort.

^[1]In the UK, the BSV Delisting Collective Action (Competition Appeal Tribunal, certification July 2024, currently on appeal) alleged collusion by exchanges in delisting BSV. The Tribunal did not define a relevant market at certification, instead assuming a broad set of substitutable crypto investments (e.g., BTC/BCH comparators) when analysing loss and mitigation. See Court of Appeal (England and Wales), BSV Claims Ltd v. Binance, [2025] EWCA Civ 661, Judiciary UK (21 May 2025). In the US, United American Corp. v. Bitmain (S.D. Fla. 2021) was dismissed with prejudice, in part because plaintiffs failed to plausibly allege a product market. See Luis Blanquez, "Antitrust Law Meets Blockchain and Cryptocurrencies in Court: Lessons Learned on Market Definition and Antitrust Injury from the Bitman Case,” The Antitrust Attorney Blog (Aug. 16, 2021). More recently, the Tether and Bitfinex Crypto Asset Litigation (S.D.N.Y., ongoing) has advanced on narrowed antitrust claims. There, plaintiffs defined two markets: a market for “cryptocommodities” (e.g., Bitcoin) and a separate market for stablecoins, reflecting their distinct economic characteristics. See US District Court for the Southern District of New York, In re Tether and Bitfinex Crypto Asset Litigation, No. 1:19-cv-09236 (KPF), Opinion and Order (Sept. 28, 2021).

^[2]See pages 39–43 of the judgment at this link -  https://www.mlex.com/mlex/articles/2142603/attachments/0.

^[3]Network fees accrue to network participants who facilitate transactions on the blockchain. A well-known example is the "gas fees" structure on the Ethereum (ETH) chain, where users are charged a fraction of an ETH token for each transaction. This gas fee is paid out to validators of the Ethereum chain, in a manner similar to mining.

^[4]The Bitcoin supply is limited to 21 million bitcoins through the design of the Bitcoin consensus mechanism.

^[5] For a discussion of cryptocurrencies see Halaburda, Hanna, Guillaume Haeringer, Joshua Gans, and Neil Gandal. “The microeconomics of cryptocurrencies.” Journal of Economic Literature 60, no. 3 (2022): 971-1013; and for an analysis of consensus mechanisms see Joshua Gans, The Economics of Blockchain Consensus, Palgrave-Macmillan, 2023.

^[6]Users may also trade meme coins like Dogecoin and Shiba Inu, which thrive on viral internet trends and lack advanced infrastructure or functionality within the blockchain beyond serving as speculative assets.

^[7]See In re Tether and Bitfinex Crypto Asset Litigation, No. 1:2019cv09236, Document 182 (S.D.N.Y. 2021).

^[9]The Brown Shoe indicia are a set of factors that regulators assess when defining a market: (1) peculiar characteristics and uses; (2) unique production facilities; (3) industry or public recognition of the market; (4) distinct prices; (5) distinct consumers; (6) sensitivity to price changes; and (7) specialized vendors.

^[10]Such as higher slippage, worse fill rates, higher latency, or reduced reliability.

^[11]In the context of a merger, such analysis is akin to assessing whether a merger substantially lessens competition. In a monopolisation case, this would be relevant to assessing the market power of the defendant.

^[12]U.S. Department of Justice and Federal Trade Commission, Merger Guidelines 2023, Section 2.1, p. 5; Section 2.6, p. 18.

^[13]U.S. Department of Justice and Federal Trade Commission, Merger Guidelines 2023, Section 2.1, p. 5.

^[14]In the Tether and Bitfinex Crypto Asset litigation, the market share of a stablecoin was measured in terms of its trading volume. See In re Tether and Bitfinex Crypto Asset Litigation, No. 1:2019cv09236, Document 182 (S.D.N.Y. 2021).

^[15]For example, Ethereum.org maintains comprehensive records of all “forks” that occur on the Ethereum blockchain. Ethereum forks represent changes to the rules of the Ethereum protocol which often include planned technical upgrades. See Ethereum.org, “Timeline of all Ethereum forks (2014 to present).”

^[16]See Office of Public Affairs, Assistant Attorney General Makan Delrahim Delivers Remarks at the Thirteenth Annual Conference on Innovation Economics, United States Department of Justice.

^[17]There are network effects also at the token/coin level (the value of a coin/token increases as more users invest, trade or hold it) and the blockchain level (blockchains become more secure as more participants join the network). See Tangem, “What is Network Effects”; Olas, Kajetan, “Network Effects in Crypto Projects: Fueling Adoption and Value," Nextrope.

^[18]Ledger Academy, “Network Effects Meaning.”

^[19]Neil Gandal and Hanna Halaburda (2015) find that crypto exchanges may continue to be competitive due to the counterbalancing effect of negative (direct) network effects. See Gandal, Neil and Hanna Halaburda, “Competition in the Cryptocurrency Market,” working paper, May 30, 2015.

^[20]Token Trekker Crypto & Travel, “8 Reasons You Should Be on Multiple Crypto Exchanges,” January 7, 2024, Medium.

^[21]Hu, Junyi and Anthony Lee Zhang, “Competition in the Cryptocurrency Exchange Market," June 2025, working paper.

^[22] See Gans, Joshua S. “Cryptic regulation of crypto-tokens." Entrepreneurship and Innovation Policy and the Economy 3, no. 1 (2024): 139-163.

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