Depending on how you understand it, Baptism of Blood is heresy. The idea that a person can be saved by baptism of blood, when applied to unbaptized persons, like baptism of desire, is a heresy in opposition to the dogmatic definitions from the Councils of Vienne, Florence (Exultate Deo) and Trent, which teach that the sacrament of Holy Baptism is of absolute necessity unto salvation. So an unbaptized person, who is outside the Church, cannot shed blood for the name of Christ and attain salvation, since he has not yet received baptism in water.
Common objection: What about St. Mark 10:38: "And Jesus said to them: You know not what you ask. Can you drink of the chalice that I drink of: or be baptized with the baptism wherewith I am baptized?" Surely this referred to martyrdom as a kind of baptism?
Well yes it did, didn't it? And rightly so. It is a dogmatic truth of the Catholic Faith that baptism is the only sacrament that provides complete and total remission for all sins and forgives all punishment due to sins. And Catholics hold it as true that martyrdom does the same exact thing.
Does this mean that a person who is unbaptized can attain salvation by martyrdom, as the Baptism of blood heretics like to assert? Of course not. Why would they create an unprecedented scenario that rivals the account of the Gospel? If they say that Jesus called his Passion a baptism, and that for this reason unbaptized people who undergo a 'passion' in His name can attain salvation, they ignore a very important part of the Gospel. Jesus was already baptized when He underwent His sufferings and death.
St. Mark 1:9: "And it came to pass, in those days, Jesus came from Nazareth of Galilee, and was baptized by John in the Jordan."
Baptism of blood heretics may say they believe in the necessity of water baptism, but then they turn around and say that God is not bound by His own sacraments, and can save whomever He wills. Again they ignore an important part of the Gospel.
St. Matthew 3:13-15: "Then cometh Jesus from Galilee to the Jordan, unto John, to be baptized by him. But John stayed him, saying: I ought to be baptized by thee, and comest thou to me? And Jesus answering, said to him: Suffer it to be so now. For so it becometh us to fulfill all justice. Then he suffered him."
Jesus Christ instituted the sacrament of baptism, the sacrament of Faith, as the sole means by which we may enter into His Church and be adopted as the sons and daughters of God. It is true that by the power of His Divinity, He could save anyone whom He wills, even the non-baptized, but this would be directly opposed to justice, since He has oathed Himself to the sacrament.
St. John 3:5: "Jesus answered: Amen, amen I say to thee, unless a man be born again of water and the Holy Ghost, he cannot enter into the kingdom of God."
The God-man, Jesus Christ, says quite clearly "...it becometh us to fulfill all justice" and since He is unchanging, He is not about to alter the way in which He brings souls to salvation.
Furthermore, martyrdom is not a sacrament, and we know from the profession of faith of Pope Pius IX at the Vatican Council that the reception of sacraments is necessary for salvation.
Pope Pius IX, Vatican Council, Session 2, Profession of Faith: "I profess also that there are seven sacraments of the new law, truly and properly so called, instituted by our Lord Jesus Christ and necessary for salvation, though each person need not receive them all. They are: 1. baptism, 2. confirmation, 3. the Eucharist, 4. penance, 5. last anointing, 6. order and 7. matrimony; and they confer grace. Of these baptism, confirmation and order may not be repeated without sacrilege."
So it clearly follows that at least one sacrament is necessary for salvation, that one sacrament being baptism in water. Without this sacrament, a person is not a member of the Church, and cannot attain salvation, even if he sheds his blood for the name of Christ.
Catholic martyrs are those who have been baptized, and have died for the true Faith of the true God, while holding and professing that same Faith. The only sense in which this is similar to baptism, is that by their death, it is believed that they are forgiven for all sins they have committed since their baptism as well as for the temporal punishment due to those sins, and that they fly straight to heaven to meet Him for whom they have died.
As for the final objection, that the Church has the Feast of the Holy Innocents, and recognizes St. Dismas (the good thief) as a saint:
A person might as well argue that Moses was not baptized, since all of these events took place BEFORE the death and resurrection of the Lord Jesus Christ, before the law of Baptism was promulgated:
Catechism of the Council of Trent, Baptism made obligatory after Christ's Resurrection, p. 171: "Holy writers are unanimous in saying that after the Resurrection of our Lord, when He gave His Apostles the command to go and teach all nations: baptizing them in the name of the Father, and of the Son, and of the Holy Ghost, the law of Baptism became obligatory on all who were to be saved."
What Must You Do To Get to Heaven?