Update: After closing the inventory and opening it again the item still had a white bow icon but when hovered over it showed some random rare pants. The item could now be sold at the trade shrine and appeared as those rare pants in the trade shrine window. When bought back it consumed the gold and appeared to disappear as it wasn't visible in the inventory, however after closing and opening it again it was there again, as a white bow impossible to interact with. So I repeated the process and discovered that when being in it's non-interactive form, it will turn into whatever item I pick up that would be moved into the inventory slot occupied by the non-interactive form. I repeated this process few times to confirm it. And sold it it to get rid of it. So issue is fixed for me.