That's not correct -- in order to use Air Drop to transfer pictures (for example) from your iPhone to your Mac, both Bluetooth and Wi-Fi must be turned on.
I'm having the exact same problem that Sleeping Mermaid described above: I'm using a 2020 13-inch MacBook Pro running MacOS 12.3 and an iPhone 12 Pro running iOS 15.4 and I have been unable to connect my iPhone to my MacBook Pro with Bluetooth ever since I upgraded to MacOS Monterey. With Big Sur and previous versions of MacOS, Bluetooth connection was fast and reliable, and I routinely used Air Drop to transfer photos from the phone to the Mac. But Monterey has completely broken Bluetooth! I can still transfer photos by using a cable connection between the phone and the Mac when I'm at home, but this is a hassle when I'm on travel.
Come on, Apple -- This problem has persisted for three "updates" to Monterey by now. Please fix it once and for all!