Bitcoin's next difficulty adjustment is set to retarget on June 6. The estimated 8-12% increase in difficulty would result in up to a 15% decrease in miner profits at current prices. And while miners do switch between coins to mine for the most profitable cryptocurrency balancing out the difficulty rate every two weeks, the upward trend in hash power remains unabated hitting over a whopping 600% increase versus a year ago. Meanwhile, profits have been plummeting by over 20% on average month-on-month from the start of the year.

While several cryptocurrencies this year have experienced 51% attacks, Bitcoin's current hash rate would make such an effort a futile attempt. Bitcoin miners who have kept the network secure have been, in return, rewarded handsomely. Miner revenues for 2017 was a shattering $3.2Bn. And so far this year miner revenues have breached the $3Bn mark. But January versus May shows a whopping 80% drop in daily estimated profits (See chart 1).

|| WHAT HASN'T DROPPED?

Hash power has been hitting new highs week on week. From the start of the year, the hash rate more than doubled with an increase of 152%.

Transaction fees have taken a hit since January-end, partly due to major cryptocurrency exchanges adopting SegWit and implementing batch transactions (See chart 3). Miner fees now represent, on average, a negligible 1.8% of revenues. In December 2017, transaction fees earned miners a cool $290Mn, 25% of earnings. In May, this dropped to under $9Mn - and split by more than double the mining units.

Alongside the increase of hash power is the reality of a lower share of the mining fees and block reward. And making problems worse for the profitability ratio is the fall in the price of Bitcoin. What hasn't changed, however, is the cost of electricity that miners must pay. Mining units now earn less Bitcoin, valued at 50% less from the start of the year, but running the equipment that's incurring the same electricity costs.

|| SHOW ME THE MONEY

While month-on-month hash power growth has been fairly linear, the day-to-day fluctuations show an entirely different story. Miners, now officially suffering from a bi-polar disorder swing between mining Bitcoin and other cryptocurrencies. On May 17, the hash rate dropped 26% - in a single day. And then recovered to a new high just a short week later. Should the hash rate growth continue, the problem might become more exasperated should the price of Bitcoin not keep up.

Whilst the King of Coins has continued to find equilibrium in maintaining miner profitability, past results don't dictate future outcomes. The increasing energy and hardware costs, as well as the increase of disbursements of miner returns across units, could bring new economic realities to the fore on a larger scale much like the way of mining on CPUs.

Should profitability mining Bitcoin dwindle to low levels, the hash rate could possibly abate as deployment of mining rigs slows down. More efficient mining units would of course address such problems in the long-term.

|| SMALL MINERS FEEL THE PINCH

A mass exodus of hash power would only be a story of fiction considering the billions on the table. What is a possibility is small miners move their computing power elsewhere in search of greener pastures, leaving the Bitcoin mining in the hands of large powerhouses who can weather low-profitability due to economies of scale as well as the benefit of purchasing electricity at wholesale prices.

S9 AntMiner Daily Profit Returns Scenarios (BTC/USD)

Source: Diar Calculations, Whattomine.com, btc.com

Notes: $0.1/kWh, No Pool Fees or Hardware Costs