In 2022, fintechs saw their valuations dwindle and funding dry up. They hunkered down to improve their financials as uncertainty reigned. Forces including the cryptocurrency ice age and the growing pains of embedded finance won’t make 2023 any easier. In the end, there will be fewer players—but those that survive will be better placed to meet consumers’ needs.

The Crypto Winter Enters Its Ice Age

Crypto firms are not too big to fail. The FTX bankruptcy is crypto’s biggest scandal to date. And the sector is tied in a crypto-leveraged knot that creates contagion: For example, BlockFi’s reliance on a $400 million credit facility from FTX led to its collapse. But these busts will have minimal impact on the broader financial system, as regulators have shielded mainstream providers from crypto.

Here’s how 2022 fallout will freeze crypto in 2023:

• Institutional capital will dry out. Investors will steer clear given cryptos’ dire 2022 performance and heightened uncertainty. This will include most US state- and government-sponsored pension funds that are currently invested in crypto.
• Regulation will further hamstring crypto firms. Any regulatory progress will lean heavily on protecting consumers, like mandating that stablecoins provide proof of reserves.
• VC funding for crypto firms will plummet. Fewer deals will close after big names like Sequoia and Tiger Global got burnt by FTX and BlockFi.
• Retail investors will lose their appetite. They’ll find other uses for their money than speculating on crypto, after millions lost money in 2022.