The interpretations given in the question are both wrong. The trouble that you are having with your questions about quotations is that words have meaning in a context, and so you cannot reliably determine the meaning of a sentence on its own: it might be fictional, or metaphorical, or figurative, or ironic, or sarcastic; it might use unusual senses of some of the words; and it very likely refers to concepts and ideas that are clarified in the surrounding context. So the first thing you need to do is to identify the source of the quotation.
In this case, the quotation comes from the short story ‘The Recluse of Bayswater’, a work of supernatural horror. The narrator, Helen Leicester, reads a report by Dr Chambers containing the following passage:
Perhaps this confession will not wound you so sharply as it would have done twenty years ago; for I think you cannot have failed to notice that for some time hypotheses have been advanced by men of pure science which, are nothing less than transcendental, and I suspect that most modern chemists and biologists of repute would not hesitate to subscribe the dictum of the old Schoolman,† Omnia exeunt in mysterium, which means, I take it, that every branch of human knowledge if traced up to its source and final principles vanishes into mystery. I need not trouble you now with a detailed account of the painful steps which led me to my conclusions; a few simple experiments suggested a doubt as to my then standpoint, and a train of thought that rose from circumstances comparatively trifling brought me far. My old conception of the universe has been swept away, and I stand in a world that seems as strange and awful to me as the endless waves of the ocean seen for the first time, shining, from a Peak in Darien.‡ Now I know that the walls of sense that seemed so impenetrable, that seemed to loom up above the heavens and to be founded below the depths, and to shut us in forevermore, are no such everlasting impassable barriers as we fancied, but thinnest and most airy veils that melt away before the seeker, and dissolve as the early mist of the morning about the brooks. I know that you never adopted the extreme materialistic position: you did not go about trying to prove a universal negative, for your logical sense withheld you from that crowning absurdity; yet I am sure that you will find all that I am saying strange and repellent to your habits of thought. Yet, Haberden, what I tell you is the truth, nay, to adopt our common language, the sole and scientific truth, verified by experience; and the universe is verily more splendid and more awful than we used to dream. The whole universe, my friend, is a tremendous sacrament; a mystic, ineffable force and energy, veiled by an outward form of matter; and man, and the sun and the other stars, and the flower of the grass, and the crystal in the test-tube, are each and every one as spiritual, as material and subject to an inner working.
Arthur Machen (1895). ‘The Recluse of Bayswater’. In The Three Imposters, pp. 173–175. Boston: Roberts Bros.
† See below. ‡ An allusion to the sonnet ‘On First Looking into Chapman's Homer’ (1816) by John Keats.
The context makes it clear that the meaning of the quotation is that if you take a scientific phenomenon and explain it, and explain the explanation, and so on, eventually you will reach a point where no further explanation is possible, the word “mystery” being used in the sense “something inexplicable or beyond human comprehension” (OED). Dr Chambers concludes that all phenomema ultimately have a supernatural or spiritual cause, but we are not obliged to agree with him: the story is, after all, a work of fiction.
The “old Schoolman” with his Latin tag comes from Coleridge:
Omnia exeunt in mysterium says a Schoolman: i.e., There is nothing, the absolute ground of which is not
a Mystery. The contrary were indeed a contradiction in terms: for how can that, which is to explain all things, be susceptible of an explanation? It would be to suppose the same thing first and second at the same time.
Samuel Taylor Coleridge (1810). The Friend, p. 332.
A “schoolman” in this sense was “a philosopher or theologian teaching or employing the scholasticism of the European universities, characterized especially by the use of dialectic reasoning and subtle argument” (OED). I have not been able to identify the schoolman or further trace the tag, and I suspect that Coleridge invented him and it.