Thanks for the additional information.
macOS 11.x Big Sur is the OS which originally shipped on a 2020 M1 Mac from the factory so you should be able to install either macOS 11.x Big Sur, or macOS 12.x Monterey.
Have you used the SanDisk Extreme Portable SSD with this M1 Mac before? The reason I'm asking is that not all third party devices are compatible with an M1 Apple Silicon Mac (especially some older devices). Also, is the SanDisk Cruzer thumb drive a USB3 version? If not, then the thumb drive is likely to old & slow to be used as a boot drive even for the macOS installer. Generally the SanDisk thumb drives are fairly good as far as thumb drives go.
Make sure you disconnect all other external devices except for the macOS installer drive.
Use the instructions in this Apple article for creating the bootable macOS USB installer:
Create a bootable installer for macOS - Apple Support
Do either of these SanDisk devices have a USB-C connector or are they using the older USB-A connector? If you are using an adapter, then maybe that adapter is the source of the problem. What adapter/dock/hub are you using? If the SSD (or even the thumb drive) has a USB-C port, then make sure you are using a Thunderbolt USB-C cable to connect the SSD since not all USB-C cables support Thunderbolt and USB3. Usually these cables will have a lightning bolt icon on their USB-C connector.
Before doing erasing your Mac, make sure to have a good backup of your data.
Also, when erasing the internal SSD once you get a working macOS USB installer, you must be very careful to only delete the "Macintosh HD" volume which should prompt you to delete the "Volume Group" which you want to do. Do not attempt to delete or erase anything else on an Apple Silicon Mac, since there are some other hidden Containers on the internal SSD which are necessary for even booting into the special boot options menu on the M1 Macs.
Use Disk Utility to erase a Mac with Apple silicon - Apple Support