Last year was one of the worst periods in the history of the digital asset industry following multiple bankruptcies and general market correction. The United Kingdom experienced a decline in investment from the fintech industry and other sectors.
The Crypto Contagion
Over the past few years, the UK economy has faced significant challenges due to various factors. The uncertainty of the Brexit campaign, the global economic meltdown, and the COVID-19 pandemic have contributed to the country’s economic woes.
The challenges have negatively affected several sectors of the UK economy, including the fintech and cryptocurrency space. 2020 was the start of the decline, but 2022 also witnessed similar challenges, as shown in KPMG’s Pulse of Fintech report.
According to the report, the fintech sector saw a drop in funding from $22 billion with 724 deals between 2020 and 2021 down to $17 billion with 593 deals last year. The report further attributes the slump to the rising interest rates, inflation, and decrease in valuations that influenced investors’ risk appetite.
Meanwhile, the drop reflects the decline in investments in one of the fast-rising sectors, cryptocurrency. Overall, global investment in crypto and blockchain entities slumped from $30 billion in 2021 to $23.10 billion last year.
As expected, the crypto market contagion triggered by the multiple collapses of key firms like FTX in 2022 had a ripple effect on the broader fintech ecosystem. The UK government has adopted a strict approach to centralize and oversee the crypto industry.
For example, the government launched numerous initiatives to crack down on crypto-based projects like an advertisement of tokens, crypto ATMs, and other harsh regulatory measures.
What Triggered Fintech Investment Collapse?
Experts blamed the continuous harsh government policies targeted at startups in the digital asset industry for the fall. Similarly, startups and investors have raised concerns over the existing government regulations that counter the country’s vision of becoming the leading fintech hub in the world.
Some of the reasons include the abrupt stop in funding to the government-backed industry agency Tech Nation. In addition, the absence of visas to attract the best from the global pool of talent to operate in the UK and the lack of tax relief all contributed to the rapid fall, according to industry observers.
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