Federal Reserve Chair Powell Investigation Sparks Crypto Market Uncertainty

VADODARA, January 12, 2026 — U.S. federal prosecutors have launched an investigation into Federal Reserve Chair Jerome Powell, according to a report by The New York Times citing anonymous sources. This latest crypto news centers on allegations that Powell provided false testimony to Congress regarding the remodeling of the Federal Reserve building, injecting immediate volatility into global financial markets. Market structure suggests this development acts as a structural shock, potentially invalidating established monetary policy expectations and forcing a recalibration of risk assets, including cryptocurrencies.

Market Context & Background

Historically, investigations into senior Federal Reserve officials have precipitated periods of heightened market volatility and liquidity fragmentation. The current probe emerges against a backdrop where crypto markets have exhibited increased sensitivity to traditional finance (TradFi) regulatory developments, particularly following the SEC's approval of spot Bitcoin ETFs in 2024. Underlying this trend is a growing correlation between Bitcoin's price action and shifts in U.S. monetary policy credibility. Consequently, any event that threatens the perceived stability of the Federal Reserve's leadership creates a Fair Value Gap (FVG) in risk-adjusted asset pricing. This investigation mirrors the 2019 scrutiny of Fed officials, which saw a temporary flight to quality assets, though the crypto market's maturity today suggests a more complex liquidity response.

Related Developments:

• Amid recent regulatory scrutiny, the Crypto Fear & Greed Index has plunged to 27, indicating extreme fear and potential capitulation zones.
• Institutional liquidity shifts are evident, as seen in JPMorgan's recent stablecoin endorsement, signaling a search for neutral ground during regulatory uncertainty.

What Happened?

According to The New York Times report, federal prosecutors are examining whether Chair Powell gave false testimony to Congress concerning the remodeling of the Federal Reserve building. The investigation, which remains in its early stages, was confirmed by sources familiar with the matter but not officially announced by the Justice Department. This follows a pattern where congressional testimony discrepancies have triggered legal reviews, though targeting a sitting Fed chair is unprecedented in modern monetary history. The allegations specifically relate to communications about the building's renovation costs and timelines, a matter that initially seemed administrative but now carries systemic implications due to the Fed's role in global liquidity provision.

Technical Analysis & Price Action

Bitcoin's price reacted to the news with a muted decline to $90,740, down 0.45% in 24 hours, but on-chain data indicates deeper structural stress. The Relative Strength Index (RSI) on the daily chart sits at 42, hovering near oversold territory but not yet signaling a reversal. A critical Order Block formed between $92,500 and $93,200 in early January now acts as immediate resistance, with a failure to reclaim this zone suggesting continued bearish pressure. The 50-day Exponential Moving Average (EMA) at $91,800 is being tested, while the 200-day EMA at $89,500 provides the primary support level. Market structure suggests a breakdown below the 200-day EMA would trigger a Gamma Squeeze in options markets, accelerating downside momentum. Consequently, the Bullish Invalidation level is set at $89,500; a sustained break below invalidates any near-term recovery thesis. The Bearish Invalidation level is $93,200; a close above this resistance confirms the sell-off was a liquidity grab and restores bullish order flow.

By The Numbers

Why It Matters

For institutional portfolios, this investigation introduces a layer of monetary policy uncertainty that disrupts the Fed's forward guidance mechanism. According to the Federal Reserve's official communications framework, chair credibility is paramount for market stability. A probe into Powell could delay or alter interest rate decisions, affecting the dollar index and, by extension, crypto's role as a non-correlated asset. Retail traders face increased volatility as algorithmic systems recalibrate to new risk premiums, potentially exacerbating liquidations in leveraged positions. The structural impact hinges on whether this remains a isolated legal issue or escalates into a broader governance crisis, similar to historical precedents where central bank credibility shocks led to capital flight into hard assets.

Community Sentiment

Market analysts on X/Twitter are divided. Bulls argue this is a temporary overreaction, citing Bitcoin's resilience during past Fed controversies. One quant trader noted, "The Volume Profile shows accumulation near $90k, suggesting smart money is buying the dip." Bears highlight the regulatory overhang, with a crypto lawyer posting, "This probe could slow Fed innovation, hurting crypto-friendly policies like digital dollar research." Overall, sentiment skews cautious, with many awaiting the Justice Department's next move. The lack of official statements amplifies uncertainty, creating a vacuum filled by speculative narratives.

Price Prediction / Future Outlook

Bullish Case (30% Probability): If the investigation is quickly resolved without charges, Bitcoin could rally to reclaim $95,000 as a relief rally. Market structure suggests a swift resolution would be interpreted as a liquidity grab, filling the FVG up to $94,500. Institutional inflows might accelerate, leveraging the dip as a buying opportunity, especially if traditional finance volatility persists. Key triggers include a Justice Department statement clearing Powell or congressional testimony downplaying the issue.

Bearish Case (70% Probability): If the probe expands or charges are filed, Bitcoin could break below $89,500 and target $85,000 (Fibonacci 0.618 retracement from the 2025 high). This scenario implies a prolonged period of monetary policy uncertainty, strengthening the dollar and pressuring risk assets. A drop below $87,200 (Volume Profile POC) would confirm bearish momentum, potentially triggering a cascade of liquidations. Historical cycles suggest central bank credibility crises have led to 15-20% corrections in correlated assets over 3-6 months.