I see another reply saying you can but I've never done it

At one time, back in the Xcode 4.x days I believe, they did support development over WiFi. It didn't seem to be very well tested at the time and got pulled out soon after. They seem to have given up on the idea for some reason but it would be nice to go that route again.

You can, starting from Xcode 6

In Xcode 8 you can't. They briefly had it as a feature but it has never worked properly and is not supported. EDIT: It was also using Wi-Fi, not Bluetooth.

Correct. I've hacked at it a bit in an attempt to re-enable the functionality but I haven't been successful yet. After reversing some old XCodes and iOS binaries I found a MobileDevice.framework call that is related to WiFi debugging but even after poking the iDevice with it, XCode doesn't show it in it's device list.

  extern int AMDeviceSetWirelessBuddyFlags(struct am_device *device, uint8_t flags);
  AMDeviceSetWirelessBuddyFlags(device, 1|2);

How? I just tried it: Made my phone discoverable, paired to it using the Mac's bluetooth preference pane. Xcode (8.1) doesn't list the phone in the "Devices" pane nor does it offer it as a deployment target.