Do you have to sterilize the water before you dunk your cakes?
No. Fully colonized substrate is resistant to contamination. Simply rinse under running cold water, then submerge in a pot of cold water. If it makes you feel better you can stick it in the fridge (not be be thought of as a "cold shock") which will slow the growth of any bacteria that might be present. Give the cake a good rinse after dunking before rolling in vermiculite.