There is certainly a correlation, but I believe you are looking at it in reverse.
When a coin goes up drastically, investors start looking for a top. In order to profit from an inevitable pull-back, people must short the coin.
To short, you must borrow coin, sell it while it is expensive, and then buy it back when the price drops, pay back the loan, and pocket the difference.
As more and more investors begin to short, they create demand for loan denominated in that coin - a shortage of available lenders causes the rates to go up. Supply and demand :)
Bitshares went up first and then the loan rates rised, but I'm positing the high loan rates keep the price increasing because people want to buy more to loan it out at a high rate. It's a positive feedback loop now
Yes, you get a feedback for awhile... People see the high rates, and maybe buy some bitshares to lend out. This creates demand for the coin.
Remember though they are lending to the very people who are expecting a drop.
Successful investors buy low, and sell high. If you are buying to lend out, you are buying high and will be paid back when they are low again plus some interest. Someone who is shorting after a big rise in price is selling high with a plan to buy back when they are low...
Yea, it's the definition of a bubble. Spirals upwards until it pops.
What happens when they default on the loan you idiots you get nothing
Before I started loaning I googled around looking for issues people had because I was sketched out. I haven't found a single case of it. I found one reddit thread where a guy was complaining that he never received a payment, and all the replies to it were positive and a poloniex support member even popped in and offered to take a look for him.
Polo takes a 15% cut, and the people borrowing have funds on the site but tied up in other coins, so almost nobody defaults on a loan, and if someone did poloniex has always found a way to make it right. Of course the past doesn't predict the future, and a huge bear run could change things, but I feel safe setting out many small loans for <25% of my total crypto assets