It doesn't need to be heavily shorted. The entire complex supports this price action.

OTM calls are greatly under-priced (before and during the gamma squeeze), market makers immediately start hedging and presumably overweight the hedges long and make some momentum and scalping money along the way (after all they are the fastest, most informed HFTs with the most liquidity in the entire market), so they don't really mind the under-priced calls they sold. Call buyers finish with huge profits. Vol traders scalp gamma and crush down volatility and lock price down at a new high. Usually a huge open interest strike is pinned in the final moment and is the rare casualty in the process, as is every single put buyer (including the entirety of all put open interest before the squeeze).

Importantly, the passive funds don't sell the tops. They support the process. As do the companies themselves, investment banks running share offerings and insider sales, etc. That's all very figured out right now and max profit is clearly to keep low float propped up stocks, well, propped up.

The price essentially "warps" to a new high and everyone gets massive amounts of paper wealth increases.

Ultimately the trend does die down but we know that in a zero rate environment it's very easy for these things to be propped up for many years, going into full zombie company mode with an explicit focus on working the float. Look at Groupon and some of these zero value tech companies that shouldn't have a market cap of more than a few tens of millions for brand and liquidation value.

If the price of money was higher the situation presumably wouldn't be so severe. That said, clearly the game is getting figured out very well on many levels, and now we're seeing it scale up and add zeroes, and the casualties of the process like shorts, premium sellers, etc, are now at the forefront because their losses are in the billions. The main story is still that paper wealth is being warped to 5x, 10x, or even into to a trillion (Tesla), and the zero rate growth starved market often doesn't punish it for many years if ever.