I have a whole mess of login items, including BTT, but disabling all of them and restarting the Mac with no applications running has the same effect.
I do not have an Apple Watch
I am a registered developer
I use the standard resolution
I'm going to test in another user account and report back.
Edited: I created a new user account with no login items or startup programs whatsoever. Issue still persists. Since it does not happen in Safe Mode, I am convinced it is a kernel extension (which are also disabled in Safe Mode) that is causing the issue.
Edit: FIXED!!!
So it was a kernel extension, in my case from Duet display, which was installed on my Mac but not running. To see what non-Apple kernel extensions are running on your Mac, enter the following in Terminal:
kextstat | grep -v com.apple
For me, it showed Duet Display as the sole culprit. Uninstalled the program, restarted the Mac. Problem solved.