Well, now we have a good answer.
A Scandinavian skeptical investigator did some video sleuthing and found what seems to be smoking gun evidence that this “river monster” is nothing of the sort. Miisa McKeown had heard about the creature and looked into it.
This behavior is completely consistent with an ice-caked fishing net or piece of cloth caught on an underwater branch or rock — and completely inconsistent with a living animal. With this new information it seems most likely that the video was not a hoax after all: Kjerúlf happened to notice a natural, inanimate object in the water and decided to videotape it. Other people later called it a mysterious creature, elevating an interesting but natural phenomenon to a monster of Icelandic legend.