Well from the shape, it is indeed a capacitor (cap, for short).

From a quick perusal of different forums, there are three possibilities with the third being most likely.

1. People are thinking that it may be to quell the ripple after converting from AC voltage to DC. This could be possible, but there should be banks of them for that exact purpose in the actual PSU case.

2. Another one is that it would provide some level of EMI filtering. Using that type of cap wouldn’t do much (not fast enough) and are however much better methods of achieving this.

3. As this is a 6+2 pin cable, it’s likely intended for a GPU. Odds are that it is intended to try to soften/eliminate a power drop/surge when the GPU’s draw spikes during a graphics heavy process, such as gaming or computing a CAD model.

Depending on the specs of your system and PSU wattage, the cap may be overkill and unnecessary. Without knowing what is in your system, I wouldn’t feel comfortable with telling you to remove it though.

A relatively safe bet however, since you are already de-pinning the cable for sleeving, is to have the end with the cap at the PSU side, hidden in that bundle of wires. Another option would also be to use two lengths of sleeving per wire and have them meet at the cap.

Removing the split shouldn’t be an issue as long as you cut it as close to where it’s crimped as possible to prevent shorting along with the caveat of it not being available if it would be needed for a upgrade.