Treasure Hunt: Sunken Chest is a Side Quest in Velen.

Travel southwest of Fyke Island to a small island. Once on the island you will see a chest and a dead body, but before you can loot them 5 drowners will ambush you on both sides. They're all level 4's so it shouldn't be too difficult, if you find yourself getting swarmed go into deeper water and they will retreat back.

Once they're defeated loot the body and read the letter. After you've read the letter dive underwater towards the marker. Be cautious as there is 4 or 5 drowners near the treasure. Eventually you will come across two chests next to each other. One of them is the sunken chest, loot them and it will complete the quest.