You may use any image as a watermark. But you’ll get better results if you use a GIF or PNG with a transparency mask or alpha layer. (Opaque white background of a watermark image makes underlying content faded)
the actual v351b8 has problems with opacity control (it always remains 100%). It is going to be fixed with the next release.
As a workaround you may use translucent PNG with opacity set, for example in Adobe Photoshop, to 20-35%.