Trace the lines on those 2 vlaves
ONE should be COLD inlet going into the WH Tank (bottom of tank) ---COLD Inlet/OPEN
ONE should connect COLD to HOT (after hot out from WH Tank)---that is the BYPASS (CLOSE IT)
WH TANK HOT Out....Most Likely has a CHECK VALVE in it (stop backflow into Tank and is CHEAP way to do it)
Post pic of YOURS if you can......
Here are some examples
2 valve system (Cold Inlet/BYPASS)
2 valve system (Cold/Bypass and Hot/Bypass)
1 valve system (Cold/Bypass only)