What is your ceiling height because that will determine a lot about your fireplace

The fireplace would become a dramatic focal point if you extend it all the way up using decorative tile. It would be beautiful.

Or, you could remove the fireplace all together. Either way, you are correct. It doesn't look right or fit the space as-is.

18' ceilings

oh wow ... hmm never thought about removing the fireplace. We only use it MAYBE 3x a year. But That Would Be Another design dilemma for me lol.

I would remove the fireplace even though you make not use it that much there are other decorating options you have.
One option is to take it to the ceiling, what I would do I would take it almost all the way up leaving about 2-3 feet from ceiling and remove the mantel recessed that wall in about 8-10”’s that will give it some dimension provided there is nothing blocking from inside the wall. Find some fabulous looking tile that will go with your decor and have it installed. The ledge will allow you to still be able to decorate. By keeping the arch at the very top you can add a couple of adjustable eyeball spotlights to show off your gorgeousness tile and any displaces out do.