It seems that the Linux kernel has a cryptopts=... boot parameter which allows to specify an encrypted root partition. Google search returns many examples of its use, however I was unable to locate the actual documentation. For example, man bootparam does not mention it. I wonder if this is an undocumented feature, or perhaps deprecated? Or maybe it is special to certain distributions?
I have even tried to grep the Linux kernel source for the string cryptopts but found nothing... Please help me to solve the mystery!
The kernel doesn't. The string cryptopts does not appear anywhere in the Linux kernel.
However, the contents of the kernel command line are exposed to userspace in /proc/cmdline. Many distributions will read boot options from the command line — for instance, Debian and Ubuntu use quiet to suppress status messages at boot time. It's likely that cryptopts is used similarly.