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For running an OS off a USB drive, I would recommend getting a USB to M.2 enclosure and putting an M.2 drive in it. This will give you better performance than any flash drive out there. The memory they put into normal flash drives is just slow slow slow for the use case of an OS.
M.2 Enclosure
M.2 Drive to go in it
Now, the only negative there is that is kinda expensive. If you really want to stick to a normal USB drive, maybe try this one out. But I would really like to stress that running an OS off a normal USB drive is going to be slow.
Yeah, I have one of those and it's great but I need very little storage for this system (64g max) so I didn't feel like it made sense in this case.
You could go with a 2.5in SSD in a USB enclosure. I think OP was just suggesting this as the highest performance option.
You won't see much of a difference between SATA and NVMe (if at all) as the maximum speed for SATA (6Gbps) is higher than the maximum speed for USB 3.0 and USB 3.1 Gen1 (5Gbps).
Not disagreeing, because you're right that the differences you'd see are minimal, but did want to add that latency & random I/o is better on most nvme than most SATA SSD. And that would be somewhat beneficial for an OS drive in my opinion. But the difference would probably not be noticeable, as you said.