First, a bit of an overview. An ETF is an exchange-traded fund, meaning an investment fund that tracks the price of an underlying asset. ETFs exist across many different industries and asset classes. For example, gold ETFs have existed for decades, and they track the price of gold.
A Bitcoin ETF would work the same way – the price of the ETF would follow the price of Bitcoin.
ETFs are regulated financial products – as such, they trade on traditional markets like the NASDAQ or NYSE and not on a cryptocurrency exchange. This, however, might change in the future as the borders between traditional finance and the cryptocurrency industry continue to blur.