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That wire is grounded to the case of the distributor. It is the shield wire (sheath)for the wire taking the points signal to the CDI.
You could leave it bare or put some heat shrink over it.
You should have a mod move this to the tech forum.
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Dennis
Euro 1978 SC Targa, SSI's, Dansk 2/1, PMO ITBs, Electric A/C
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