I know this was discussed many times before, and Bitcoin experienced price drops comparable and even exceeding what is happening now. But at least one thing is very different this time: much higher tps. To be frank, I'm scared. In the case of significant part of hashing power switches off, confirmation time for most transactions might increase to unacceptable levels, what could activate vicious cycle, the lower goes the price, the less miners mine, the longer it takes for a transaction to be confirmed, the more people quit Bitcoin, selling at any price, the lower goes the price, eventually Bitcoin dies. Isn't it appropriate time now to at least increase maximum blocksize, better still - improve difficulty adjustment algorithm to be more flexible?
We can't even have this discussion until you define how much the average confirmation time has to grow before this "vicious cycle" is triggered.
We've already had a few drops in hashing power (and therefore in difficulty) in the past few months, and shortly after that the hash power (and difficulty) increased again.
Note that it is the most inefficient mining equipment that is most likely to be shut off first. This means that the percentage of hash power lost is less than the percentage of hardware shut off.
As hash power is shut off, the remaining miners become more profitable.
The variance in block times is so large that most people wouldn't even notice if the average time between blocks were to double to 20 minutes. Do you really think that more than 50% of the entire global hash power might all simultaneously shut off simultaneously immediately after a difficulty adjustment? It is far more likely that the process you describe drags out over a few months. In that case, the difficulty will continue to adjust every 2016 blocks so that the average time between blocks never reaches "unacceptable levels".
