M1 Imac fails to recognize ANY mouse

At first, my magic mouse 2 stopped working ( it may not be connected with the current problem) when plugged via usb, mouse appears as charging, as soon as I remove the cable it disappears and when replugged seems like 1% battery again.

However, that is not the main issue as I was happily using with a cabled mouse plugged in to usb hub. When I open the mac, the cursor is on the top left and not moving. Tried with few different mouse and wireless usb keyboard and mouse, same. When I totally unplug the computer few times, it works very rarely for few minutes than stops working again. At times that it works, I tried to come to the hard reset option however could not reach, on the way somewhere stops working again. To be able to work, even though I am a dedicated mac user, I had to purchase a windows computer and I am writing this from it :( I saw many similar posts on the community however could not find any solution or did not see anyone was able to fix it in a way. Basically my m1imac became useless and I cannot even sell without finding a solution.

If it is a software issue, I am ready to delete everything and clean install older version of OS. I tried safe mode as well, same thing happens.

Please help :(