I've set up the Bluetooth and it works as intended, but the signal strength is much more than I need it to be. I need the range to be half of what it is right now.
Update:
Found a solution using the bluepy library to handle the bluetooth pairing part and a beacon that emits a constant bluetooth signal.
This guide and the library documentation helped a lot.
Note: I only want it to pick up devices if they are very close to the Pi. As it is, it pickups devices at a close and long distance.
On the Raspberry Pi the Bluetooth stack is BlueZ. In very recent (newer versions that ship with RPi OS) there is a new experimental feature to change the Tx Power of advertisements.
This is documented in the following document (Search for "power")
https://git.kernel.org/pub/scm/bluetooth/bluez.git/tree/doc/org.bluez.LEAdvertisingManager.rst
To evaluate this functionality you will have to build and install a newer version of BlueZ with experimental features enabled.
If you don't use WiFi (or the WiFi signal is also very strong) you could reduce the effective radio range by shielding the antenna. Putting the Pi inside a tin cookie/tea box (with the lid partially open) should do the trick. If the range becomes too short, open the lid some more. A tin can should also do if you don't mind the looks.
Just make sure you don't let the metal touch the PCB or the GPIO pins.
pickups devices at a close and long distanceyou would have to adjust the transmit signal strength of those devices