I think just type selection is enough but more flexibility can't hurt I guess, if feasible.
The screenshot showed the context menu with collections. I've redacted the names since not all of them are public. I've left the "refresh list" item visible at the bottom

chaban, I removed your screenshot as it was only showing a black rectangle here. But I think issue is clear without it anyway.

I see, thanks. Do you think type selection would do with the limited types, or should it rather allow for selecting the actual collections to present in the menu?

Type selection for releases would be something like selecting one or multiple of:

• Owned music
• Wishlist
• Other release collections

Similar for recording collections if PICARD-2543 gets implemented:

• Owned recordings
• Other recording collections

This might be sufficient, as most users probably want to use their owned or wishlist lists to add. E.g. I have two owned and one wishlist, and I use Picard to add the release to the owned lists only. I have several others wihout specific type I use for different purposes. So for me the type selection would work well (and I would only select "owned").

But if you have many different collections this might still be noisy. E.g. if you have many collections without specific type but only  1 or 2 of those you typically add to with Picard.

For this it might be better to have a options UI where you see all your collections and can select those you want to view in the context menu.

On a side note such collection settings could also allow specifying the collection to which releases should automatically be added on save (PICARD-1526).

Some collections have subtypes, for example there are "owned music" and "wishlist" for releases. (And "owned recordings" for recordings, see PICARD-2543)
My list of collections is quite long and almost fills the entire screen (1080p). I'd like to reduce the "noise" and mouse movement distances by hiding generic release collections that aren't "owned".

I'm not sure I understand. The "type" of a collection says for which entity type the collection is. But Picard currently only deals with release collections anyway. Or do you mean another type?