Trackpad and Keyboard not working on login screen. works in diagnostic

So I ran into this issue almost 6 months ago. One day I woke up and my trackpad and keyboard were not responsive with the mouse icon being locked at the top left corner from boot up to the login screen. Even if I hit caps lock the green light was not responsive. It searches for a Bluetooth keyboard/mouse.

I used a BT keyboard and mouse to gain access and format the computer reinstalling a new iOS and still the issue occurred. I assumed at this point it was a hardware issue. I then decided to just try running a diagnostic test by holding “D” on the start up and when I connect in this mode the keyboard and mouse are fully responsive. Caps lock turns the green light on and I’m able to run the entire diagnostic by connecting to WiFi... I run the diagnostic and there is no detection of a hardware malfunction.

So I’m stumped... it can’t be a hardware issue if it’s working in that mode can it? And it can’t be a software issue if I’ve reinstalled iOS twice. So what could it be? Apple couldn’t even figure it out but I knew more about the issue than they did when all they tried to do was reinstall a new iOS and then tell me to send it in for a flat $375 to fix the issue... no thanks. I happen to have a 11” MacBook Air same year that I had and I just ended up using that. Now it’s 6 months later and I’m trading crypto and want a laptop dedicated to just that and so I’m trying to dig deeper and resolve this.

Any help would be greatly appreciated!