I remember somewhere that in Okami legends, Crimson Helm was said to have been been born when Orochi died at the hands of Nagi, materializing from his blood. Whilst we all know this was false because he was on the Ark of Yamato, if you look at the original concept for the inside of the Ark, his image isn’t on it. Instead there is the image of the two owl demons.
I think that the developers wanted to have Crimson Helm as a being born from Orochi’s death like in the myth, but ultimately placed him in the Ark of Yamato because there would be problems replicating the Lechku and Nechku fight without Shiranui or Oki. In the end Crimson Helm got his own lunar symbols and a place on the Ark, as seen in the concept designs.
In universe, maybe Orochi’s death would have summoned Crimson Helm, and his sudden appearance would have been interpreted as a birthing from the blood of Orochi, resulting in the legend. Maybe Crimson Helm was still on the Ark, or elsewhere in Nippon.
Either way, it’s pretty cool!
My headcanon is also very similar. The myths humans tell about Orochi’s time and before to explain the unexplainable aren’t usually the truth. Sometimes there’s a good basis (“evil came from the North” for instance) but they lack the real information. This guy appeared sometime after Orochi’s death -and his aura was sorta kinda in the same vibe- so they assumed they were linked somehow. Makes sense to me. It is a logical leap, and I don’t think that legend contradicts the truth because to me, it wasn’t supposed to be so.