A ‘Cryptocurrency Exchange-Traded Fund’ theoretically works like any other ETF. Similar to how other ETFs track either an index or a set of assets, a crypto ETF keeps track of one cryptocurrency or a basket of digital tokens. Like any other ETFs, cryptocurrency ETFs too, are traded on the exchange market like a cryptocurrency pair.
For a crypto ETF to function properly, the firm managing the funds must own the underlying cryptos that it tracks. These assets combined are represented as a share, and purchasing these would indirectly mean buying of the cryptos in that ETF.
Since the crypto market is highly compartmentalized, traders can't purchase several cryptocurrencies with a single wallet or an exchange. Thus, ETFs give traders the benefit of tracking multiple digital tokens at once.