MacOS 12.1 Monterey update breaks bluetooth connectivity

I had previously installed MacOS 12.0.1 Monterey on a 960Gb Corsair SSD installed in my Mac mini 2014 and everything was great! Then after updating to MacOS 12.1 Monterey I cannot connect to my iPhone SE 2020 with bluetooth anymore, immediately after pairing MacOS disconnects and while both iPhone and my Mac seem to recognize one and other they won't connect, even after deleting com.apple bluetooth plist, or even the entire bluetooth preferences folder, restarting, etc. The same thing every time I get the pairing number code sent to my phone, click Yes and bluetooth connects for less than a second then disconnects and a message pops up on my phone reading my Mac mini isn't supported.

Everything worked fine with initial release Monterey MacOS 12.0.1

so something with the update has made my ability to work productively sharing files and photos via airdrop to and from my iphone impossible. Meanwhile my slightly older 2017 iPad can still connect.

Tried forget/delete all devices nothing helps even my iPhone is the only device shown in Bluetooth preferences. Not that it should matter because it's pretty bad if you have to select only one connection at a time and remove all others, nobody has time for that

Not good Apple PLEASE FIX IT!!!