It's still an arms race, but the slowdown in hash rate expansion was predictable (I did predict it :-)) once everyone was running close to state-of-the-art hardware with low supplier margins and energy costs had been reduced as far as possible. Things can still move with a technology shift (such as when 16nm ASICs or more power efficient 28nm/20nm devices come online) or if the BTC price increases though. The hash rate will ultimately absorb every optimisation possible!
The issue with the arms race metaphor is this is a profit and loss business.Everybody experiences equipment dropout over time due to breakage. There is a difficulty level at which it is no longer economic to replace the equipment that wears out. Especially after the next halving. After the halving, I would expect a slow decrease in difficulty to a new normal.
There is now huge uncertainty in future difficulty increases.
The big players are facing huge uncertainty in their investment decisions.
I suspect what will happen is, if difficulty stays flat for a few increases, there will be another round of investment putting us back on the upward trajectory. If it even starts increasing at 5%, the investment decisions get much harder at this BTC price.
