I’ve noticed that if I erased the internal drive on my Mac mini M2 I can still boot to my external drive but it wouldn’t let me apply any dot 1 updates, so the internal drive has to have an installed OS, I was just using it as a swap drive for Photoshop and da Vinci resolve.
Even if I choose to have find my Mac turned off it still requires this.
Did you clone the internal drive on an external? Maybe there are some paths saved that lead to one of the internal drives partition.
External drives work fine as a boot drive for macOS if you format it APFS encrypted and just install macOS from your internal drive on it. You can use Migration Assistant to get everything from the internal drive. At least for me it was the case.
Also it is not recommended to use USB on Apple Silicon Macs for something to boot from.
This arcticle sums up every problem very good.
https://support.bombich.com/hc/en-u...1479-Creating-legacy-bootable-copies-of-macOS