I can imagie Squilliam just walking into the chum bucket seeing all the carnage being shocked for a second and the minute he sees Squidward all he'll say is "Was this another one of your poor attempts to impress me Squiddy?"
I have more- "Looks like you've moved on from sucking eggs, Squiddy. Only to be sucking *CHUM*! You're just proving me right! You'll always be *second-class* to me! A *BOTTOMFEEDER*!"
To be honest, while most comments here agree that Squilly is here to take on Teuthida, I like to think of this as an AU where Squilliam is the one who goes insane because of his own narcissism and superiority complex, since he’s always been better than Squidward in every way possible, he just let it get over his head, so to say.