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I have an existing custom field with the data type text and its contain some default value like 'Dear sir/madam,'

Here my question is ...can I insert a merge field (salutation) to pass dynamic values here.... from the same object.

Is it possible?

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    You can use a formula field to construct a value from a template like this, if that's what you mean. You can't use Text fields as templates without some custom Apex, and I wouldn't recommend that approach in most cases.
    – David Reed
    Mar 2 '18 at 18:00
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As David Reed suggested,

The easiest approach is to merge a formula field. Then use that custom field as the merge:

{!Object.Dynamic_Salutation__c}

If you are using a contact for the email template they already have a salutation field on the record.

{!Contact.Salutation}

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