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UPDATE 1-Bitcoin blow as fund drops U.S. exchange application

(Adds details on effort to list bitcoin fund)

Sept 28 (Reuters) - An effort to allow investors to trade digital currencies as easily as stocks in the United States stumbled when the backer of a bitcoin fund said an application to list on an exchange had been withdrawn.

Grayscale Investments LLC said Intercontinental Exchange Inc's NYSE Arca exchange withdrew a request with the U.S. Securities and Exchange Commission (SEC) to list its Bitcoin Investment Trust, in the latest setback to the digital currency.

"Although digital currency market regulation continues to rapidly evolve, at this time Grayscale does not believe there have been enough regulatory developments to prompt the SEC to approve the ... application," the fund's issuers said in a statement. They said they would continue their dialogue with regulators, but could not predict when they may get approved.

The Bitcoin Investment Trust is currently traded "over the counter" in less formal exchanges than those used for typical stock transactions and at far higher prices than the bitcoin it holds. On Wednesday, shares closed at $739.50, while the bitcoin it holds were worth less than $373, according to the issuer.

The shares are nonetheless trading up 508 percent this year, more even than the meteoric rise of the digital currency, which JPMorgan Chase & Co CEO Jamie Dimon this month called "a fraud" that will blow up.

Bitcoin is a virtual currency that can be used to move money around the world quickly and with relative anonymity, without the need for a central authority, such as a bank or government.

Approval from the SEC could bring more investors into the asset, yet the regulatory agency has expressed doubts over the fact that the bitcoin market is unregulated.

In March, the SEC denied two applications to list bitcoin products on exchanges, including one backed by investors Cameron and Tyler Winklevoss, the twins best known for a feud with Facebook Inc founder Mark Zuckerberg which was dramatized in the 2010 film "The Social Network."

CBOE Holdings Inc's Bats exchange, which wanted to host the Winklevoss-backed exchange traded fund (ETF), has appealed the SEC's ruling.

A proposal to list a product based on ether, a rival digital currency, was pulled earlier this month.

Regulators have not yet weighed in on two other efforts to bring a digital currency to U.S. exchanges. Similar products already trade in Europe and one is being considered in Canada.

NYSE and the SEC were not immediately reachable for comment. (Reporting by Trevor Hunnicutt in New York and Kanishka Singh in Bengaluru; Editing by Gopakumar Warrier and Alexander Smith)