With bypass OPEN you will get cold water from hot side of faucet.
With bypass CLOSED and you get NO FLOW from hot side of faucet....then check valve on hot outlet of WH tank is stuck closed, jammed/plugged.
Water supply off
Relive pressure on WH tank by opening PRV until water stops flowing out
Disconnect hot water outlet line
Remove nipple on tank (check valve inside nipple).
Gut the nipple-remove check valve parts.
Install nipple
Install another shut off valve on hot water out line and do away with the cheap piece of junk check valve (Only needed when bypassing WH tank to winterize----new shut off valve makes it easier)