Why lithium investors keep getting psychologically destroyed at both the top and the bottom of the cycle
For those newer to the lithium space, the past few years probably looked completely insane.
One minute lithium was being called the most important commodity on Earth, with prices screaming toward 600,000 CNY/t and developers receiving billion-dollar valuations seemingly overnight. The next minute the entire sector was declared dead, structurally broken and permanently oversupplied as prices collapsed below 60,000 CNY/t and sentiment evaporated.
As someone who has been a lithium bull since 2017, I’ve lived through every phase of this cycle personally: the excitement, the euphoria, the fear, the doubt, the ridicule, the capitulation and now, finally, the early signs of renewed optimism.
What became obvious through this journey is that commodity cycles are rarely driven purely by fundamentals. They are driven by psychology. Sentiment overshoots reality in both directions. At the top, markets extrapolate shortages forever. At the bottom, they extrapolate oversupply forever.
Reality usually sits somewhere in between while the underlying disruption keeps advancing in the background.
That’s exactly what happened with lithium.
The Seven Emotional Stages of the Lithium Cycle
The Fear & Greed Lithium Cycle graphic was designed to map not only lithium price action, but the emotional psychology driving the cycle itself. In commodities, sentiment often matters just as much as fundamentals.
1. Interest
Between 2017 and early 2018, the EV story was beginning to emerge globally. Tesla was still proving EVs could work at scale, China was ramping battery production aggressively and investors started recognising lithium as a strategic material rather than a niche industrial commodity. Optimism builds slowly in this phase as the first signs of structural change become visible.
2. High Interest
As EV adoption accelerated and media coverage intensified, lithium entered a momentum phase. Speculation surged, retail participation exploded and developers attracted increasingly aggressive valuations as the market began pricing future shortages. But strong narratives eventually attract too much capital, and that’s usually when the seeds of the next downturn are planted.
3. Fear
Between late 2018 and early 2020, the sector entered its first major collapse. Supply surged, inventories built and prices rolled over hard as the narrative flipped from shortage to oversupply almost overnight. Suddenly lithium was “overhyped,” projects became uneconomic and the media lost interest.
This phase is psychologically brutal because investors begin questioning whether the original thesis was wrong. Fear dominates decision-making.
4. Indifference
Indifference is often the most important phase of any commodity cycle because almost nobody notices it while it is happening. During 2020, lithium prices collapsed toward multi-year lows near 40,000 CNY/t and the sector became effectively uninvestable in the eyes of most market participants. Retail disappeared, volumes dried up and analysts stopped paying attention. Yet underneath the panic, EV adoption continued accelerating, battery manufacturing kept scaling and China continued building. The long-term disruption thesis never stopped. Sentiment did.
5. Interest Returns
By early 2021, tightening supply conditions and accelerating EV demand began feeding back into lithium pricing. At first, most investors viewed the rebound as temporary, but prices kept climbing as battery demand accelerated faster than producers could respond. New projects struggled to come online quickly enough and the market suddenly realised lithium supply chains are not infinitely elastic. Years of underinvestment during the previous downturn had created bottlenecks. The cycle had turned again.
6. High Greed
This is the phase where narratives become self-reinforcing. As prices accelerate, media attention explodes, momentum traders pile in and valuations disconnect from reality. During 2021 and 2022, lithium transformed from a niche industrial commodity story into a full-blown global mania, where every new EV sales report fuelled another wave higher and every battery announcement reinforced the shortage thesis.
Suddenly everyone became a lithium expert.
7. Max Greed
Late 2022 represented peak euphoria, with lithium carbonate prices approaching 600,000 CNY/t. At this stage, markets were no longer pricing current demand, but decades of future perfection all at once. Marginal projects received massive valuations, speculative behaviour exploded and the dominant assumption became: “Lithium shortages will last forever.”
That’s usually when risk becomes highest because commodity markets always respond to extreme prices. High prices incentivise aggressive supply growth, and eventually that supply arrives.
The Great Lithium Collapse
The decline between 2023 and 2025 was one of the most psychologically destructive periods lithium investors have ever experienced. Prices collapsed, developers got crushed and forced liquidations accelerated downside momentum as the narrative completely inverted from “shortages forever” to “permanent oversupply.”
Social media turned vicious, analysts downgraded the sector aggressively and retail investors capitulated. Many abandoned the space entirely.
The irony is that EV demand never stopped growing during the collapse. That’s the critical point most people missed. The demand side of the disruption story remained intact. What actually happened was a brutal cyclical washout. Supply surged too aggressively into the 2022 spike, while temporary inventory overhangs distorted market conditions and amplified the collapse. Weak projects got purged, speculative excess disappeared and sentiment imploded.
What looked insignificant in 2017 is now compounding into system-scale disruption. Annual EV sales surged from just 1.2M to 20.9M between 2017 and 2025, expanding the global EV fleet from 3.2M to more than 90M vehicles.
Sales show momentum, but fleet growth reveals the deeper story: millions of EVs permanently entering the global transport system each year, steadily reshaping oil demand, infrastructure, supply chains and the automotive industry itself.
Beneath the panic, however, the structural balance was already beginning to tighten again. By May 2025, the sector reached what I believe was the true emotional bottom of the cycle. Not necessarily because prices hit their absolute lowest point then, but because psychologically the sector looked completely broken. This was the Max Fear phase, where investors stopped asking when lithium would recover and started asking whether lithium had a future at all.
Around this same period, China’s carbonate balances were quietly tightening while LFP deployment across EVs and ESS continued scaling rapidly.
The important point here is that the lithium market was never drowning in endless surplus the way headlines often suggested.
Even in 2026, China’s carbonate balance appears structurally tight, with demand (~1.81 Mt) already slightly outpacing supply (~1.77 Mt). The market oscillates month to month, but the broader trend shows demand continuing to accelerate faster than supply can comfortably respond.
That distinction matters.
Supply is still scaling aggressively, particularly domestic Chinese production, but battery demand driven by EVs and ESS continues compounding at extraordinary speed. LFP remains the dominant chemistry powering that expansion, especially across mass-market EVs and stationary storage.
In other words, supply isn’t really leading the market anymore. It’s chasing demand.
And when markets transition from apparent surplus toward structural tightness, sentiment often changes far faster than most participants expect.
That’s usually how bottoms form.
Why The Thesis Never Actually Broke
Before continuing, it’s important to acknowledge that many veteran commodity investors who have lived through multiple full resource cycles may disagree with parts of this framework or interpret the current lithium market differently. That’s fair. Commodity markets are notoriously difficult to model because timing, supply elasticity, geopolitics and sentiment all interact unpredictably. This article simply reflects my interpretation after following the sector closely since 2017.
One of the biggest misconceptions during the collapse was the idea that lithium demand itself had failed. That simply wasn’t true.
The broader Bettrification thesis kept advancing the entire time. For those unfamiliar with the term, Bettrification is my shorthand for the accelerating shift toward a battery-powered world, combining electrification, batteries, software, automation, AI and renewable energy into one converging disruption thesis where batteries increasingly sit at the centre of transport, energy storage, AI infrastructure and eventually large parts of industrial society itself.
EV adoption continued growing globally, China accelerated electrification, grid-scale storage deployment exploded and LFP batteries became increasingly dominant. The world kept moving toward electrification even while lithium equities were being obliterated. Short-term oversupply does not automatically invalidate long-term structural demand. The market temporarily confused cyclical imbalance with thesis failure. Those are not the same thing.
Sodium-Ion, LMFP and the Future
Rising lithium prices will inevitably accelerate investment into alternative battery chemistries. Sodium-ion batteries are real technology with genuine potential, particularly in lower-cost stationary storage and entry-level EV applications, and major players like CATL and BYD are already pushing aggressively into sodium development.
But scale matters. Sodium production capacity remains tiny relative to lithium, and scaling global manufacturing to meaningful levels will likely take years. In transport applications, weight and energy density still matter enormously as consumers continue demanding longer range, faster charging, better efficiency and lighter vehicles.
That reality continues to favour LFP in the near term and likely LMFP as the next major evolutionary step. Sodium will absolutely carve out market share, especially in ESS and lower-end mobility, but the idea that it suddenly replaces lithium entirely misunderstands both manufacturing scale and battery physics. The battery ecosystem will likely become increasingly diversified rather than fully replaced.
The Most Important Lesson
The biggest lesson from the lithium cycle has very little to do with lithium itself. It’s about psychology. Markets always sound smartest at the extremes: at the top, “shortages forever”; at the bottom, “permanent oversupply.” Neither narrative fully captures reality. The truth usually sits somewhere in between while disruption steadily compounds underneath the noise.
The lithium cycle was never just about lithium. It was a real-time psychological stress test for belief in the broader Bettrification thesis itself.
Now, after nearly four years of pain, tightening conditions are finally beginning to re-emerge and the market appears to be entering the next emotional phase once again. Not euphoria. Not mania. Just early interest.
The key signals I’ll be watching are whether lithium carbonate can sustainably hold above the ~180,000–200,000 CNY/t range for several consecutive months while China continues reporting tightening carbonate balances, alongside EV battery installations consistently remaining above ~80 GWh/month as port inventories tighten further.
Should those conditions persist simultaneously, it would strongly suggest the market is moving beyond simple cyclical recovery and back toward structurally constrained conditions, potentially marking the beginning of the next genuine High Interest phase of the cycle.
And cycles usually begin quietly before they become obvious to everyone.
Disclaimer: This article reflects personal views and interpretations of market cycles and sentiment. It is not financial advice.