Closed Loop ATM

[spin]

Let's say you are trending towards emptying the USD cash.  As it get's closer a margin is built up over the market exchange rate to cover the cost of refilling the machine.  Eventually the machine could use that margin to improve the exchange rate for guys depositing USD such that it shares that margin with these guys.  So it offers a rate that's better than the market rate to encourage users to refill the machine. 

[P_Shep]

Look you can play this game in your own bedroom.  Put a pile of bitcoin (monopoly money) on your bed along with your spare change and pretend that is the ATM.  Pick the current market price as the starting point.  Then flip a coin and if it's heads increase the price of bitcoin by 10 USD and if tails reduce the price by 10 USD.

Every coin flip do an arbitrage trade against the machine (your bed).  The machine plays catch up and sets it's new price to match  the "market price" after the trade.  You will quickly find that the machine (your bed) runs out of money OR bitcoin and becomes stranded on the wrong side of the market price unless you run a huge spread which makes it unprofitable to trade.  

You're still not getting it. The ATMs don't JUST use the market price, it also uses the amount of cash it has left. Hence the 'closed loop' part. So the last $10 it has, might, for instance, cost you 200% market value. Add to that a 3% service charge there won't be much, if any, scope for arbitrage.

Make up your mind.  Is the ATM market linked or not?  Only if it is market linked with a premium then yes it will work.  If it is running off a pure internal demand and supply algorithm then it will fail. 

Market linked with a premium, which changes depending on the local supply/demand. It's not that hard to imagine.

[HairyMaclairy]

Look you can play this game in your own bedroom.  Put a pile of bitcoin (monopoly money) on your bed along with your spare change and pretend that is the ATM.  Pick the current market price as the starting point.  Then flip a coin and if it's heads increase the price of bitcoin by 10 USD and if tails reduce the price by 10 USD.

Every coin flip do an arbitrage trade against the machine (your bed).  The machine plays catch up and sets it's new price to match  the "market price" after the trade.  You will quickly find that the machine (your bed) runs out of money OR bitcoin and becomes stranded on the wrong side of the market price unless you run a huge spread which makes it unprofitable to trade.  

You're still not getting it. The ATMs don't JUST use the market price, it also uses the amount of cash it has left. Hence the 'closed loop' part. So the last $10 it has, might, for instance, cost you 200% market value. Add to that a 3% service charge there won't be much, if any, scope for arbitrage.

Make up your mind.  Is the ATM market linked or not?  Only if it is market linked with a premium then yes it will work.  If it is running off a pure internal demand and supply algorithm then it will fail. 

Market linked with a premium, which changes depending on the local supply/demand. It's not that hard to imagine.

Yes agree perfectly feasible. What about the risk of the machine accepting counterfeit notes and issuing counterfeit notes to the public?

[P_Shep]

Yes agree perfectly feasible. What about the risk of the machine accepting counterfeit notes and issuing counterfeit notes to the public?

Well that would be a whole different can of worms!

Note reading systems can be quite sophisticated though.