Yes, it is functionally equivalent to having Bluetooth enabled.

When Bluetooth is on, your iPhone broadcasts itself with a rotating random MAC address (a feature now called Bluetooth LE Privacy). It rotates at a fixed interval, something like every 5 minutes.

With contact tracing enabled, your phone broadcasts another random identifier, and that identifier rotates at the same interval as your MAC address. The random identifier is actually cyphertext, and the key to decrypt it is stored on your phone.

I think it should have been turned on by default if Bluetooth is turned on by default, but people would have complained very loudly.