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UPDATE 2-U.S. exchange withdraws SEC request to list bitcoin fund

(Adds new bitcoin ETF application, updates GBTC market price)

Sept 28 (Reuters) - An effort to allow investors to trade digital currencies as easily as stocks stumbled when a U.S. exchange withdrew its application for government approval to list a bitcoin fund.

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 product's backers 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 stocks and at far higher prices than the bitcoin it holds.

Shares traded down 3.4 percent to $714.50 on Thursday afternoon, far higher than fund's estimate that its bitcoin assets are worth $372.89 per share.

GBTC shares gained nearly 500 percent this year, more even than the 329 percent rise of bitcoin to more than $4,100.

The meteoric rise of the currency prompted JPMorgan Chase & Co CEO Jamie Dimon this month to call the digital currency "a fraud" that will blow up.

Bitcoin can be used to move money around the world 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. The SEC declined to comment, while NYSE could not be reached.

In March, the SEC denied two applications to list bitcoin products on exchanges, including one backed by investors Cameron and Tyler Winklevoss, twins best known for a feud with Facebook Inc founder Mark Zuckerberg.

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

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

Bitcoin-tracking products already trade in Europe and one is being considered in Canada.

Regulators have not yet weighed in on three other efforts to bring a digital currency to U.S. exchanges, including a proposal filed on Wednesday by ProShare Capital Management LLC that includes a proposed fund that would short bitcoin futures contracts, betting their price will fall.

(Reporting by Trevor Hunnicutt in New York; Additional reporting by Kanishka Singh in Bengaluru; Editing by Alexander Smith and Lisa Shumaker)