I've found that in GPS mode, while remaining in one place, I have to physically touch the enemies to engage in battle. Turning on "hands-free mode" does not have my character fight any battles in my absence.Does that use of hands-free mode for farming even require moving around? Based on what I have seen on livestreams, enemies seem to respawn at fast enough rate for it to work even when you stay in one place.
In any case, it looks like an unintentional exploit to me, and people in the beta should definitely report it as such. We don't want SE to be labelled as an environmental pig who encourages people to leave their devices running in high power consumption mode for long periods of time, do we?
But using GPS mode and engaging in battles yourself definitely is a way to play the game since that doesn't cost AP and enemies do respawn quickly. And potions / ethers are common enough, plus you get a free health and MP recharge every hour with the hut.