Cephalopod species reach maturity quickly and face a shorter life expectancy, meaning that even if super massive squid or octopus exists, the window for discovering it before death is quite narrow, thus playing a significant role in how elusive these creatures are. Many encounters with giant squid, colossal squid, and even giant octopus have occurred not far from coastlines around the world as they possibly rise to the surface for feeding. Given the monstrosity of giant squid and the possibility of even larger colossal squid, it seems like a perfect fit to Norwegian myths of a Kraken capable of snapping the largest ships in two.
Suppose that every once in a while one of these colossal monsters grows abnormally large, either due to environmental influence or rare hormone conditions, and then rises to the surface to feed perhaps on the same prey caught by a fishing vessel that just happened to be in the area. The fishermen unknowingly nab a colossal with tentacles long enough to wrap around the boat as they pull it out of the water. Indeed this would be a frightening experience and definitely something to remember especially if it happened at night, but it doesn't seem totally out of the question for such an event to happen in rare occurrence.
A fishing vessel scenario lends feasibility to this sort of freak event yet it can't quite explain Kraken attacks on merchant ships in the same light. Given a potential size of giant or colossal squid or octopus compared to the size of ships at the time, it's not out of the question to think the Kraken would've been as real as day and a true threat to sailors. Clearly these types of creatures do exist but perhaps the embellished portions of their stories reside in the monster's intentions. Often they're portrayed as gigantic ravenous animals who seek out ships traversing high seas without an inkling to the fact encounters may have been unintentionally provoked in competition for prey. Or maybe there is a completely different type of creature out there lurking the depths of the world's oceans.
† Article 10-3