Is it normal to suddenly become clueless about your PhD topic and how to rediscover one?
Don't consider your time reviewing the field necessarily wasted. You say that you've discovered that the research topic that you wished to pursue has already been thoroughly investigated. If this is true, then you are in the happy position of finding this out now before having invested more of your time.

Now, is it indeed true that the topic has been exhausted? Perhaps this is the basis of your supervisor's request that you continue reading around the topic. Is there a line of investigation still remaining that you can work on? Are you sure all the extensions to the primary findings have been looked at? Is there a way of extending into new and unexpected territory?

On this last point, talking to many other people in the field - or closely related fields - might spark off ideas in your head. Discuss with them whether they think all aspects of the topic have been considered. Find people who are not experts in the specific topic, but are conversant with it who might offer a difference perspective. These people might draw you toward research across two fields. Can the results of the research topic you were looking to work on be extended into other, surprising areas?