The Image Watermark module supports JPEG, JPG, PNG and GIF images. BMP image type images are not supported.
The module uses 3rd party and GD library to manipulate images. The BMP image type is not natively supported with the GD library and the 3rd party library does not have support for it either.
The BMP image format is not efficient for web. It doesn't support compression, it doesn't scale well and it has a big footprint resulting in bigger file size. It is recommended to convert BMP images to JPEG/JPG format if you plan to use them on your website.