The story
An earlier form was seen in buggybow, probably an alteration of bugbear (see bug), but connected by Chapman ("Dictionary of American Slang") with Bugibu, demon in the Old French poem Aliscans from 1141, which is perhaps of Celtic origin as a pagan god (compare Cornish buccaboo (“devil”), from bucca (“bogle, goblin”)). Alternatively, bug + a + boo. For a similar semantic development from a heathen god to demon to monster, compare etymology of French lutin.
Etymology from Wiktionary, CC BY-SA 4.0.