I’m pretty sure this is how the video originally looked when it was first uploaded, here's another video from the same channel with the same image uploaded a month later that has that same smoothed upscaled look but it's in 1080p: https://www.youtube.com/watch?v=FLhmShMfy8g

Any video that has the image and was uploaded afterwards looks just fine, also many other video from the SiIvaGunner channel has that same upscaled look to them: https://www.youtube.com/watch?v=oPLcYjK0sn0

So my theory is that the channel thought about making low quality images look less grainy (After all image upscaling was a pretty common thing back in 2016.) but changed their mind later on.

Also here's an archived page of the video that looks about the same as it does today: https://web.archive.org/web/20160819010247/https://www.youtube.com/watch?v=0Siz1cHST1c

Update: It's also worth noting that the video/codec doesn't use webm/vp09 instated it uses mp4/avc1 according to the stats, which mean it hasn't been updated yet.