Bars of 100-ounce silver are stacked inside The Safe House, a vault operated by Silver Bullion Pte, in Singapore.
Silver may have staved off the worst of its speculative frenzy.
The precious metal retreated from eight-year highs on Tuesday after Reddit-fueled traders set their sights on the metals market in Monday's session, driving the price of silver up 8% in a day.
But while retail traders may have been responsible for recent double- and triple-digit percentage moves in stocks including GameStop, their short squeeze play may not work on silver, GraniteShares founder and CEO William Rhind told CNBC's "ETF Edge" on Monday.
"I don't think what happened in GameStop will happen to something like silver," said Rhind, whose firm runs the GraniteShares Bloomberg Commodity Broad Strategy ETF (COMB), 5% of which is invested in the metal.
While silver is perceived as having high short activity from professional investors and the banks — providing an ideal "villain" for the speculative crowd — the majority of it is "legitimate," Rhind said.
"Banks are short the silver market because they have very legitimate commercial interests in doing so," he said. "They borrow metal, silver, from the market for their customers. Those customers could be refiners, they could be mining companies, but typically, it's legitimate activity."
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Though regulators have loosened some trading restrictions in the last year, the Volcker Rule — which largely banned proprietary trading by banks — is "still in place to limit the exact same activity that retail investors are now claiming still exists within the banks," the CEO said.
And the silver market's safeguards don't stop there, Rhind said.
He estimated that the market cap for physical silver is worth some $30 billion, nearly 20 times larger than GameStop's was before its meteoric rise.
The silver market is also flush with supply, "be it in the professional market, be it futures or also physical supply via recycling coming back into the market at higher prices," he said.
There are also the regulators, particularly the Commodity Futures Trading Commission and the exchanges, who set margin requirements with the goal of limiting risk and volatility, he said.
The Chicago Mercantile Exchange increased its margins for silver on Tuesday to normalize for the rising volatility.
COMB hit a high not seen since Dec. 27, 2019, in early Tuesday trading. The iShares Silver Trust (SLV) fell more than 7%.
