I think you are onto something.

From my perspective reality, vr and augmented reality will merge to something we currently can't grasp yet,

Once your 5 senses are are indistinguishable stimulated by all of them, then reality just gets more layers in my opinion.

With that said I think we are already living in a fantasy world/simulation and are on our path to be able to create and experience everything there is.

Human fantasy is not some fairy tail far fetched bullshit that happens in our brain. Our fantasies are building blocks from the universe that show us what we are capable of.
They urge us to turn thought potential into reality.

And what we do when we create worlds like game of thrones, marvel universe, harry potter are basically early stage concepts of worlds we will be capable of building one day. One missing link at a time.

I bet my ass that it won't take 1000 years until we build thousands of matrix like worlds, that we dive into, all while simultaneously leaving our bodies of flesh and blood step by step behind.

I do think that we eventually just float around as pure energy, capable of creating and being everything.

I also think that the creatures that evolved from us as machine(human hybrid will think of us as fucking stupid and retarded in every sense of the way. The same way we look down on Neanderthals.