There are various methods to skip the Water Medallion cutscene. Each has its own unique uses depending on the situation.
Link's health needs to be at 1/2 heart or less in order to perform this trick. Drop and catch your bottled item and follow the setup shown in the video below to activate Ocarina Items in the correct position. Press B when the camera snaps back to a normal angle, then follow the instructions shown in the video below. You have a 3-frame window to pull out the bomb.
This method of the Water Medallion Cutscene skip requires Down A in combination with a blank B button which allows Link to use restricted items. If there is an item equipped to the B button, you can activate Down A underwater with a Bombchu before triggering the Morpha fight in order to use restricted items. Since your sword is not equipped or disabled, the Megaton Hammer is required to defeat Morpha. After defeating Morpha, use the Ocarina just as Link steps on the edge of the blue warp. To play the song properly without Link unintentionally using the C-button items, either hang on a ladder or hold Z + R.