The students in business faculty member Hong Wan's "Multinational Financial Management" course are working on a historical-economics analysis to show whether bitcoins are in a phase that makes them ripe for a crash, another upswing or long-haul stability. Bitcoins have fluctuated in value from nearly nothing at their 2009 debut to more than $1,200 in 2013 before sliding recently under $600.

     "We are trying to determine what stage we are in with bitcoins," said Eyub Yegen, a senior majoring in both finance and applied mathematical economics. "Are we looking at a bubble? How is this similar to the mortgage-backed securities bubble in 2007?"

     Yegen and colleagues Xiaodong Lou, Victoria Danquer, Yixuan Wang and Kyle Crisafulli plan to present their preliminary findings April 9 at Quest, the college's daylong celebration of scholarly and creative activity. Quest, free and open to the public, will showcase more than 300 presentations, panels and events.

     The five students believe theirs is a unique quest: to apply to bitcoins a model developed by the late economic historian Charles P. Kindleberger, whose 1978 book with Robert Z. Aliber, "Manias, Panics and Crashes," went through five editions and remains required reading for students of the cyclical life of unstable investments.

     Bitcoins -- not backed by any traditional commodity, such as gold -- have depended on building global credibility to establish value. Today, bitcoins are used for everything from pizza purchases to fulfilling seven-figure contracts, thanks to consensus among their users that they are secure, promise anonymity, usually are free of third-party payers and fees, and employ a reliable and public multi-entry ledger system for tracking all completed transactions of each of the 12.5 million bitcoins currently in circulation.

Boom and bust

     The student researchers aim to use the lessons of investment manias going back to the Tulip Bubble of the 17th century to position bitcoins in their version of Kindleberger's model: Simplified, the stages include innovation, confidence-building, euphoria, speculative mania driven by market irrationality and unrealistic borrowing, bubble, profit-taking, increasing disenchantment triggered by a specific event, financial distress, panic and, ultimately, bust.

"We are trying to find out whether there's a bubble or are we before the bubble," Lou said.

     Proponents of bitcoins believe they are riding the wave of the digital-commerce future, providing a secure method for local or global transactions unique enough that Bitcoin has its own lexicon: "mining," "block chain," "hash rate" and so on.

     In the course of the project, the undergraduates are learning about teamwork and research steps that will help them in graduate school, the workplace and in their own financial futures.

     "This is definitely exciting," said Danquer, a senior finance major who is conducting the literature review. "We are the first finance students trying to do this. I am very interested in bitcoins and learning more about them, and possibly investing in them someday."

     Wang's part of the project is using the Bloomberg service and Internet finance sites to collect data on price, volume and other trading measures for bitcoins. "Professor Wan gives us ideas about the variables to put into the model," she said.

     Yegen said he believes the group eventually can publish the work in a peer-reviewed journal and make presentations at other conferences after Quest, thanks to another historical lesson of economics: division of labor.

     "It's a joint project, and that's the beauty of teamwork," he said. "Everyone is busy, so everyone has a part."

     Visit www.oswego.edu/quest for more information, including times and locations for presentations.