It left me wondering, is it supposed to be Scarecrows fear gas? Has Bruce Wayne returned as Batman and is now using the gas? That seems a little out of character and rather overboard for Batman.
Another answer could be that Bruce Wayne is now Batman full-time and perpetuating a myth that Batman is now an undead demon ghost. This seems plausible on some level because Batman states in the game that there needs to be something more defending Gotham, a concept beyond Batman. Thus turning Batman into a terrifying vengeance seeking ghost is a lot scarier than him being a really rich guy with lots of gadgets. That keeps criminals on their toes and more apprehensive to follow rich people down alleyways, if Bat-ghost might materialise.
Although Im still left wondering why criminals would not be afraid of Batman anymore and why Bat-ghost would be necessary. By this point in the timeline everyone knows Batman is flesh and blood and not a myth or a monster. Overheard dialogue throughout the three Rocksteady games shows that people know Batman is out there and that he makes use of gadgets, not superpowers, yet theyre still afraid of him.
Another thought I had was that its symbolic. That the whole world turning to fire and Bat-demon isnt fear gas or literal, but symbolic of the fear the crooks feel at seeing Batman out there. But again, this seems to clash with the fact that the thugs literally call out to Batman and tell him theyre not afraid. Then of course theres the chance theres DLC coming that will answer who it is. If this is the case, Id expect this demon Batman to be some copycat who got hold of some Scarecrow fear gas. But I dont feel like this is the case, as weird as that final scene is I do get the impression its supposed to be the end of the story.
Unfortunately I just feel like the ending encapsulates the main problem I had with Arkham Knight: the story is very inconsistent. Some story beats hit perfectly while others fall flat and end in disappointment or are surprisingly straightforward. For instance why does Scarecrow act so radically different than he did in Arkham Asylum? Does his plan really just boil down to I dont like Batman and I like people being scared? The Arkham Knight was a good idea but the reveal of who he is is teased out for so long that it goes from being fairly obvious to begin with, to blindingly apparent thanks to multiple indicators later on. You end up in a situation where theres no mystery left and it seems silly that Batman is still scratching his head over who it could be. The worlds greatest detective can scan bones, detect scar tissue through clothing, analyse Azraels brain but he cant figure out that the person inches from his face is somebody he trained for years? Time to update detective vision I think
Arkham City had multiple story threads that complimented each other, even the final hour of the game had multiple twists and clever moments that made everything clearer. But Arkham Knight juggles its plot threads in a much more haphazard manner. Is this a game about Scarecrow? Joker again? Or Jason Todd? The family theme is a strong one but it gets muddled in with other plot beats and as a whole the game feels pretty unfocused. Having Batman unmasked and giving up also feels tacked on and worryingly like it might have been done just because Rocksteady are ready to leave Batman behind. Like this Knightfall ending, it doesnt feel like a natural end to the game.