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Various theories; probably from the surname Busby.
1887, Thomas Stevens, chapter IV, in Around the World on a Bicycle, Vol. II: From Teheran to Yokohama, London: Sampson Low, pages 71–72:
[…] many Khorassanis wearing huge sheepskin busbies, similar to the head-gear of the Roumanians and Tabreez Turks of Ovahjik and the Perso-Turkish border.