I don't agree.
You present two things as if they are mutually exclusive, when they are not.
The very starting point of your argument seems to be that current niche communities can only exist at the expense of local geographic communities.
As such, you seem to suggest sacrificing existing communities in favor of hypothetical "better" communities based on physical proximity.
Such communities are useful in terms of political mobilization, but they aren't very fun. People don't bond over tax rates, they bond over tabletop rpgs, cats, music, movies, etc. And you can't engage in those bonding activities in local communities until they themselves are big enough to contain such niches within them.
And all of these things can exist simultaneously. In fact I completely reject your view that niche online communities do more harm than good.
Boiled down, your view seems to equate to seeing a bunch of people having fun, and telling them to go do something useful, while completely dismissing that it doesn't matter whether I learn empathy from my neighbor, or someone on the other side of the world.
What you're asking for, IMO, is for the fediverse to work more like facebook and twitter, which HEAVILY bias their feeds towards local matters. The US would not have been so easy to turn into a xenophobic ball of angry people if their social media were MORE international.
TikTok is even worse about it. The one time I gave it a chance, it was 90% content local to me. But it was mindless trash. At worst, it was xenophobic rhetoric. Local, doesn't mean meaningful, or good.
You saw it on reddit all the time, how people from the US often didn't even realize they were talking to people across the world. Because it's a foreign concept to them. Say what you will but it is the one corporate platform that doesn't care where you are from. Everyone discussing something gets pooled into the same communities and threads, regardless of age, sex, or even timezone.
That is a good thing. We need more of that, not less. Because online and real-world communities DO overlap. But you seem to be asking them to match. That would isolate them, not empower them.
Online communities today are the one way that authentically bridges communities of people across the world. If online communities matched offline communities, why would I ever develop a desire to understand not just my neighbor, but also people across the world?
How would I ever go and find out for myself, how people across the world think and feel? Whether my government speaks true about the threats around us, or if there is more to it?
If you overlap a bunch of circles, they all become connected. If you match them, you get bubbles.
That is how corporate social media has been functioning for over a decade, and it needs to be stopped, not propagated. If we sort people into only one group (like where they are from), you isolate them.
But when you sort each person into least two groups or more, you connect everyone to everyone, by virtue of almost every group having members in common with every other group.