Renee..I'm certainly not a pro, but I would not use the water soluable on both sides. I would use the tear away or better yet..cut away on the inside of the cap. It would remain under the stitching over time and continue to hold the stitching up out of the knit...does that make sense??
Also...I might even use the cut away sticky so that I didn't have to leave a hoop mark on the hat.