Why do you think short squeezes happen? It’s not because shorts are being insane and covering. They are literally forced to. You have buying for reasons that aren’t commercial and that’s why short squeezes are so bloody.
They are forced to because the lender of the stocks is afraid that they don't have enough money to buy back if things go even higher. If you can prove you have enough money at current prices then you are not forced to sell. GME is not a big company, even at current prices there are several funds that could afford to have a significant short interest from the bottom without getting a call.
edit: originially I said they could carry 200% short, but that is not true. The biggest funds I can find could alone have shorted 30% of a GME at $3 and be okay at $300, but going much above that price or percentage of GME shorted would be a problem.
That is not what naked means. Naked short sales are short sales without an executed or agreed upon borrow between the borrower and broker. You are referring to short interest higher than 100% of the float (total shares in circulation), which is mundane because it happens organically when a lot of people want to short the same thing and start borrowing shares which were already sold short.
It seems entirely unsurprising to me that a brick and mortar retailer selling digital goods in the middle of a pandemic would be a hot short target for many different funds, thereby organically pushing short interest over 100%.
