The problem here is you’re not actually in recovery mode if it’s trying to reset a password or no user qualifies to unlock the storage. I would start up back to macOS and be sure you have internet, wired Ethernet preferably, and try to validate your user is set up properly or make a new admin account.
Just about everything you learned on Intel needs to take a back seat for Apple Silicon machines.
If you press and hold the power button, are you seeing options?
Apple silicon
Turn on your Mac and continue to press and hold the power button until you see the startup options window. Click the gear icon labeled Options, then click Continue.
In your case, if there are no users that are properly entangled with the controller chip Secure Enclave to unlock the encrypted drive, you will have to fix that in macOS or backup and restore the Mac using Apple Configurator.