Was blood letting traditionally done in this location? Was there a specific reason that the location was the penis?
Bloodletting was not restricted to just the penis, the tongue and ears were also often pricked with a spine, bone awl, or an obsidian blade to extract blood. People often hear that blood was the sustenance of the gods, which is true to an extent but it is not the whole truth. Blood also conveys soul, or ch'ulel. It is this ch'ulel mixed with other precious substances like copal incense, maize dough, rubber, and jade which were converted to smoke and sent to the gods to consume.
The penis, though, has symbolic meaning that the ears and tongue do not. In Classic Maya texts, the glyph for sacrificial phrases is the word ch'am or "to harvest" in English. For English speakers, when we hear harvest we think of cutting down wheat. But for the Maya it means plucking the ears of ripe maize from their stalks, which is an action with sacred connotations. That act of husking maize is a perfect analog of penis perforation which we can see today when the Maya use bone awls, similar to the stingray spines of the past, to husk maize. Karl Taube, in a letter to Linda Schele and David Freidel, described the process to them. "During the harvest, the ear of corn is dehusked by holding it about waist level and inserting the pointed instrument near the tip of the cob." This mundane action has greater symbolic importance because it harkens back to the original sacrifice in mythological history, the decapitation of the Maize God. This action is what is needed to provide food for people. Because maize cannot seed itself, cutting off the head of the cob is necessary if the seeds are to be removed and replanted for the next crop, an action that symbolizes the perforation of the penis. Maize provides this metaphor of sustenance, sacrifice, and rebirth which reappears in many forms and in many places in Maya belief.